AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON July 12, 2000
S-4 REGISTRATION NO. 333-_______________
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Windsor Woodmont Black Hawk Resort Corp.
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(Exact name of registrant as specified in its charter)
Colorado
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(State or other jurisdiction of incorporation or organization)
7993
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(Primary Standard Industrial Classification Code Number)
75-2740870
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(I.R.S. Employer Identification No.)
12160 North Abrams Road, Suite 516, Dallas, Texas 75243
(214) 575-8757
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(Address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
Daniel P. Robinowitz, CEO, 12160 North Abrams Road, Suite 516,
Dallas, Texas 75243
(214) 575-8757
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(Name, address, including ZIP Code,
and telephone number, including area code, of agent for service)
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the registration statement becomes
effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ] If this Form is filed to register
additional securities for an offering pursuant to Rule 426(b) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]...............
If this Form is a post-effective amendment filed pursuant to Rule 426(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]...............
<TABLE>
<CAPTION>
Calculation of Registration Fee
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Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate offering registration
securities to be registered registered per unit(1) price(1) fee
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<S> <C> <C> <C> <C>
13% First Mortgage Notes
due 2005 $100,000,000 100% $100,000,000 $26,400
Total registration fee $26,400
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on the date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on the date as the Commission, acting pursuant to said section 8(a),
may determine.
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PROSPECTUS $100,000,000
OFFER TO EXCHANGE
13% FIRST MORTGAGE NOTES SERIES B DUE 2005
FOR ALL OUTSTANDING 13% FIRST MORTGAGE NOTES DUE 2005
OF
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
A casino developed and owned by the issuer
to be operated under the trade name
BLACK HAWK CASINO
BY HYATT
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
___________ TIME, ON _____________, 2000, UNLESS EXTENDED.
o We will exchange all old notes that are validly tendered and not withdrawn
prior to the expiration of the exchange offer.
o You may withdraw tenders of old notes at any time prior to the expiration
of the exchange offer.
o We believe that the exchange of old notes will not be a taxable event for
U.S. federal income tax purposes, but you should see "United States Federal
Income Tax Considerations" on page 179 for more information.
o If you do not tender your notes in the exchange offer, you will continue to
hold unregistered securities and your ability to transfer your notes could
be adversely affected.
o We will not receive any proceeds from the exchange offer.
o The terms of the new notes are substantially identical to the old notes,
except that the new notes are registered under the Securities Act of 1933
and the transfer restrictions and registration rights applicable to the old
notes do not apply to the new notes.
o There is no established trading market for the new notes, and we do not
intend to apply for listing of the new notes on any securities exchange or
Nasdaq.
For a discussion of factors that you should consider before you participate in
the exchange offer, see "Risk Factors" beginning on page 18 of this prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful and complete. Any representation to the contrary is a
criminal offense.
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Neither the Colorado Limited Gaming Control Commission or any other regulatory
agency has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is
unlawful.
The date of this prospectus is _________, 2000
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TABLE OF CONTENTS
Where You Can Get More Information ................................ 2
Forward-Looking Statements ........................................ 3
Market and Industry Data........................................... 3
Prospectus Summary ................................................ 4
Risk Factors ...................................................... 18
The Exchange Offer ................................................ 34
Sources and Uses of Proceeds ...................................... 44
Selected Financial Data ........................................... 45
Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 48
Change of Accountants ............................................. 53
Business .......................................................... 53
Gaming and Liquor Licensing Matters ............................... 65
Material Agreements ............................................... 73
Management ........................................................ 86
Executive Compensation ............................................ 89
Certain Relationships and Related Transactions..................... 90
Principal Shareholders ............................................ 92
Description of Other Indebtedness ................................. 95
Description of Capital Stock ...................................... 98
Description of Units .............................................. 104
Description of the Notes .......................................... 105
Description of Warrants ........................................... 169
Certain Federal Income Tax Considerations ......................... 179
Plan of Distribution .............................................. 186
Legal Matters ..................................................... 186
Experts ........................................................... 186
Index to Financial Statements ..................................... F-1
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WHERE YOU CAN GET MORE INFORMATION
This prospectus is part of a registration statement on Form S-4 that we
have filed with the Securities and Exchange Commission. This prospectus does not
contain all of the information set forth in the registration statement. For
further information about us and the new notes, you should refer to the
registration statement. This prospectus summarizes material provisions of
contracts and other documents. Since these summaries may not contain all of the
information that you may find important, you should review the full text of
these documents. We have filed certain of these documents as exhibits to our
registration statement.
You should direct any request for information to Michael Armstrong, our
corporate Assistant Secretary, at least 10 business days before you tender your
old notes in the exchange offer. Our mailing address and telephone number are:
Windsor Woodmont Black Hawk Resort Corp.
12160 North Abrams Road
Suite 516
Dallas, Texas 75243
(214) 575-8757
As a result of the exchange offer, we will be subject to the periodic
reporting and other informational requirements of the Securities Exchange Act of
1934. In addition, under the indenture governing the old notes and the new
notes, we have agreed that whether or not required by the rules and regulations
of the SEC, beginning with respect to the quarter ended March 31, 2000 and
continuing for so long as any notes are outstanding, we will furnish to the
holders of the notes, copies of the financial information that we would be
required to file with the SEC pursuant to the Exchange Act. This financial
information shall include annual reports containing consolidated financial
statements and notes thereto, together with an opinion thereon expressed by an
independent public accounting firm, management's discussion and analysis of
financial condition and results of operations, as well as quarterly reports
containing unaudited consolidated financial statements for the first three
quarters of each fiscal year. We have also agreed to furnish to holders of old
notes and to securities analysts and prospective investors, upon their request,
the information required to be delivered pursuant to Rule 144(d)(4) under the
Securities Act so long as any notes remain outstanding.
The registration statement, as well as such reports, exhibits and other
information filed by us with the SEC can be inspected and copied, at prescribed
rates, at:
o the public reference facilities maintained by the Public Reference
Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549;
o the regional office of the SEC at 7 World Trade Center, 13th Floor,
New York, New York 10048; and
o the regional office of the SEC at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Please call the SEC at 1-800-SEC-0330 for additional information about its
public reference room. Our SEC filings are also available without charge on the
SEC's Internet site at http://www.sec.gov.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. All statements other
than statements of historical facts included in this prospectus, including
certain statements under "Prospectus Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business," may
constitute forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events.
Although we believe that our assumptions made in connection with the
forward-looking statements are reasonable, we cannot assure you that our
assumptions and expectations will prove to be correct. Important factors that
could cause our actual results to differ from our expectations are disclosed in
this prospectus, including under "Risk Factors." These forward-looking
statements are subject to various risks, uncertainties and assumptions about us,
including, among other things:
o our ability to open our casino within budget and on time;
o the expected design, development, construction, equipping, pre-opening
costs and working capital requirements for our casino;
o the expected advantages of our four-corners location, single
ground-floor gaming layout, attached self-parking garage and large
porte cochere;
o our ability to effectively compete with our competitors;
o the Hyatt brand name recognition and Hyatt Gaming's expertise in
attracting and servicing patrons relative to our local competitors;
and
o our belief that the Black Hawk market has not yet approached achieving
penetration of the local residents in both Denver and Boulder, as well
as the tourists who visit Colorado.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events in this prospectus might not occur.
MARKET AND INDUSTRY DATA
We have based the Black Hawk market data and other statistical information
in this offering memorandum supplement, including parking data, on information
supplied by the Colorado Division of Gaming, the City of Black Hawk and various
public announcements and filings made by some of the casinos in the Black Hawk
market. We have also relied on other sources that we believe are reliable.
However, we have not independently verified any of this information or such
announcements and filings, and it is possible they may not be accurate in all
material respects. Accordingly, you should not rely on this data when making
your decision to invest in the units. The gaming markets in Colorado and in
Black Hawk are subject to continual changes, including changes in the number and
size of casinos in such markets. Because of these changes, our estimates of our
casino's expected position in Colorado and in Black Hawk in terms of size,
comparable amenities, parking and nearby competition could become inaccurate at
any time.
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PROSPECTUS SUMMARY
The following summary contains selected information from this prospectus.
This summary may not contain all of the information that is important to you. We
urge you to carefully read this entire prospectus and the documents that we
refer to in this prospectus. The terms "our company," "we" and "us" refer to
Windsor Woodmont Black Hawk Resort Corp. and the term "our casino" refers to the
integrated casino, entertainment and parking facility that we will construct in
Black Hawk, Colorado to be operated under the trade name "The Black Hawk Casino
by Hyatt." No representation or warranty, express or implied, is made by any of
the Hyatt companies as to the accuracy or completeness of the information in
this prospectus, and nothing contained in this prospectus is, or shall be relied
upon as, a promise or representation by any of the Hyatt companies.
The Exchange Offer
On March 14, 2000, we issued and sold $100.0 million aggregate principal
amount of 13% first mortgage notes due 2005, referred to as the old notes. The
old notes were contained in units, each unit consisting of $1.0 million
principal amount of old notes and one warrant to purchase 3.42744 shares of our
common stock. In connection with that sale, we entered into a registration
rights agreement with the initial purchasers of the old notes in which we agreed
to deliver this prospectus to you and to complete an exchange offer for the old
notes. As required by the registration rights agreement, we are offering to
exchange $100.0 million aggregate principal amount of our new 13% first mortgage
notes series B due 2005, referred to as the new notes, the issuance of which
will be registered under the Securities Act, for a like aggregate principal
amount of our old notes. We refer to this offer to exchange new notes for old
notes in accordance with the terms set forth in this prospectus and the
accompanying letter of transmittal as the exchange offer. You are entitled to
exchange your old notes for new notes. The new notes have substantially
identical terms to the old notes. We urge you to read the discussions under the
headings "The Exchange Offer" and "The New Notes" below in this Summary for
further information regarding the exchange offer and the new notes.
Our Business
We plan to construct, develop, own and operate an integrated casino,
entertainment and parking facility in Black Hawk, Colorado. Black Hawk is
located approximately 40 miles west of Denver and 8.5 miles north of Interstate
70, the main highway which connects Denver to many of Colorado's major ski
resorts. Our casino will be managed by Hyatt Gaming Management, Inc., an
independent third party casino manager and affiliate of Hyatt Corporation. Our
casino will be located directly on Highway 119, the main thoroughfare to Black
Hawk from both Denver and Boulder. When it opens, we expect that our casino will
be the largest and most spacious gaming facility in Colorado. It will be able to
accommodate up to 1,500 slot machines and 24 table games on a single,
ground-level floor. The exterior of our casino will exhibit Rocky Mountain style
architecture, and the interior decor will include distinctive, high-quality
finishes and furnishings, vaulted high ceilings and a unique upscale ambiance. A
variety of non-gaming entertainment amenities, including a steakhouse
restaurant, a high-quality action-station buffet, a food court featuring various
quick service food offerings, a circular lounge with a stage for live
entertainment and large television screens for viewing televised sporting and
other events, will be located throughout our casino. Our casino will also offer
(1) an attached parking garage with approximately 800 self-park and valet
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spaces, which will be able to accommodate buses and motor coaches, (2) the
largest porte cochere entrance in Black Hawk, and (3) an indoor/outdoor plaza
area featuring a gourmet coffee shop, an ice cream parlor/candy store and a gift
shop. Our facility will total approximately 425,000 square feet, and will
contain approximately 57,000 square feet of qualified gaming space within our
building footprint in a spacious, single-floor layout which will provide our
patrons with a unique gaming and entertainment experience easily accessed from
our four-corners location at the center of Black Hawk's gaming district.
We believe that substantial opportunity exists in the Black Hawk market for
a large casino with a variety of upscale gaming amenities designed to attract
more customers from both the Denver and Boulder metropolitan markets and, to a
lesser extent, the Colorado tourist market. We will offer an upscale Las Vegas
style entertainment experience which will include numerous gaming and non-gaming
entertainment offerings, parking convenience and a variety of dining options.
The initial participants in the Black Hawk market were small scale gaming
facilities whose inability to offer convenient, on-site parking or a full range
of traditional casino amenities and entertainment choices limited the rate of
growth of gaming revenue in this market. Subsequently, larger casinos offering
typical gaming amenities, including increased square footage of gaming space,
adjacent covered parking and multiple dining options, have entered the market
and have been gaining market share. The City of Black Hawk experienced 30%
compound annual growth in gaming revenue from 1992 through 1999. We believe that
the Black Hawk market has significant growth potential and that Black Hawk's
gaming revenue growth rate will continue to exceed the rate of growth in gaming
positions. Despite capacity additions over the years, win per slot per day has
increased every year since 1992. We expect to further expand this market by
providing an integrated gaming, entertainment and parking facility. We believe
that our unique facility, coupled with the significant experience of Hyatt
Gaming and the other Hyatt companies in managing and marketing first class
gaming operations, will enable us to attract both existing gaming customers and
patrons from the Denver and Boulder metropolitan areas and the Colorado tourist
market who may be new to the Black Hawk market.
As of December 31, 1999, only three of the 19 casinos in Black Hawk offered
more than 700 gaming positions. The casino most comparable in size to our casino
for which public data is available is the Caribbean-themed Isle of Capri Black
Hawk. The Isle of Capri, located on Main Street with approximately 1,100 gaming
machines on a single casino floor, generated an estimated average win per slot
per day of over $210 during its most recent fiscal quarter which ended on
January 23, 2000, as compared to the 1999 average win per slot per day of
$132.18 for all 19 casinos in Black Hawk.
We believe that our casino will be successful for the following reasons:
o We believe that our casino will have the best location of any casino
in the Black Hawk market. We will be located on Highway 119, the main
thoroughfare from Denver and Boulder. Consequently, our patrons will
not be inconvenienced by the traffic congestion on Main Street that
the other large casinos in Black Hawk are forced to cope with;
o Our casino in Black Hawk will be managed by Hyatt Gaming. This
relationship will afford us both a significant level of operating
expertise on which to draw and a name having national recognition;
o As one of only three single-floor casinos in the Black Hawk market,
our spacious layout will feature gaming, a variety of dining options,
non-gaming entertainment and other unique amenities, which we believe
will differentiate us from the other large casinos; and
o We will have a convenient, attached self-parking garage and large
porte cochere leading directly into our casino.
We expect our casino to open in the Fall of 2001. We believe that the
excavation and construction budget and timetable for the opening of our casino
can be achieved based on the following:
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o The excavation contract provides for excavation to be substantially
completed in July 2000, subject to certain conditions, with financial
penalties for finishing late and incentives for finishing early. The
excavation contractor has extensive experience with similar projects
and has completed substantial excavation of our site;
o The construction of our casino is being performed pursuant to a
guaranteed maximum price construction contract with PCL Construction
Services, Inc., one of the largest general contractors in the United
States. PCL has experience in constructing facilities in Black Hawk,
including The Lodge Casino and Hotel, which is located directly across
from our site. The construction contract provides for construction to
be completed approximately 14 months after the excavation of our site
is substantially completed, subject to certain conditions, with
financial incentives for finishing early and penalties for finishing
late; and
o We have already received many of the local design and regulatory
approvals required to complete the construction of our project and we
expect to receive the other required approvals in due course.
The Black Hawk Market
Gaming was first introduced in Colorado in October 1991 following a
state-wide referendum in which voters approved limited stakes gaming ($5 per bet
limit) for three historic mining towns -- Black Hawk, Central City and Cripple
Creek. The amendment to the Colorado Constitution authorizing gaming restricted
it to zones within these towns that were designated for commercial use prior to
the adoption of the legislation. Of these three towns, Black Hawk is the closest
to Denver. The Black Hawk market primarily caters to day-trip customers from the
Denver and Boulder metropolitan areas who primarily play slot machines.
According to statistics published by the Colorado Gaming Division, approximately
95% of gaming revenue in Colorado in 1999 was attributable to slot play.
Approximately 3.4 million people reside within a 100-mile radius of the Black
Hawk market, of which approximately 2.3 million reside in the Denver
metropolitan area. The only other locations in Colorado where casino gaming is
permitted are in two small Native American gaming facilities located in the
southwest corner of the state, over 300 miles from Denver.
Black Hawk's strategic location has contributed to the strong, consistent
growth in the city's gaming revenue. Gaming revenue in Black Hawk has grown from
approximately $56.2 million in 1992 to approximately $354.9 million in 1999,
which represents a 30% compound annual growth rate. We expect this growth to
continue as larger casinos enter the market and add additional on-site parking,
hotel rooms and non-gaming amenities. The entry of larger, better-capitalized
casinos has also improved and expanded the marketing of Black Hawk as a day-trip
destination.
Our Competitive Strengths
We believe that our casino will have distinct competitive advantages over
other casinos in the Black Hawk market. These advantages include:
o Favorable Location and Accessibility. We believe our casino will be
one of the most accessible gaming facilities for customers arriving
from Denver. Our casino will be located at the four-corners
intersection of Highway 119 and Richman Street in the center of the
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Black Hawk gaming district. Our location will afford our patrons ease
of access via a dedicated right turn lane off of Highway 119. Unlike
our competitors, who are located on Main Street which is narrow and
typically congested with automobile and pedestrian traffic, we do not
expect to be negatively affected by any continuing construction or
infrastructure improvements following the commencement of our
operations;
o Management, Operation and Marketing by Hyatt Gaming. Following
development and construction of the project, our casino will be
managed and operated by Hyatt Gaming. The Hyatt name will make our
casino the only casino in Black Hawk with a name having national
recognition. The Hyatt companies have significant experience in
managing and operating hotels, resorts and casinos. In particular,
hotel affiliates of Hyatt Gaming have over a decade of experience in
Colorado marketing to both the tourist and convention market segments.
We believe that our exclusive relationship with Hyatt Gaming in the
Black Hawk market will enhance our reputation and our ability to
attract a broader customer base;
o Unique Design. Due to mountainous terrain, existing roads and zoning
and gaming regulations, most casinos currently existing in Black Hawk
are multi-level, small in size and irregular or elongated in shape.
Due to the shape, size and zoning of our casino site, our casino
design will include a spacious gaming area akin to Las Vegas style
casinos. The entire gaming area will be located on a single,
ground-level floor, unlike the tight, narrow, multi-leveled gaming
areas of all but two of the casinos presently in Black Hawk. Our
casino will be upscale and distinctively designed, unlike most of our
competitors' casinos which are very similar in design and appearance,
and will offer the largest single floor of casino space in Colorado,
allowing us to absorb peak period demand;
o Significant Parking. Most casinos currently in Black Hawk do not
provide adequate parking facilities. We will have an attached
self-parking garage, which leads directly into our casino, that will
provide approximately 800 spaces and that will be able to accommodate
buses and motor coaches. In addition, our parking garage will feature
a covered porte cochere leading directly into our casino. We also own
adjacent property which can be used for additional parking. Currently,
there are approximately 4,000 on-site parking spaces provided by
existing casinos in Black Hawk, with another approximately 1,270
spaces under construction and scheduled to be available by December
31, 2000. Of these approximate 5,270 total on-site parking spaces for
other casinos, approximately 1,350 are within a short walking distance
of our casino;
o Barriers to Entry. Because we will own more than 50% of the remaining
undeveloped casino-zoned land in the area south of Gregory Street,
which is considered to be the prime gaming district in Black Hawk, we
believe that our casino will be one of the last significant casino
construction projects in Black Hawk. The remaining allowable
gaming-zoned land in Black Hawk cannot be increased or altered without
amending the Colorado State Constitution; and
o Experienced Design and Development Team. Paul Steelman Ltd., a Las
Vegas-based, internationally renowned architect and interior design
firm, will be creating and designing our casino. Steelman Ltd. has
designed and opened casino resorts in 15 states and nine countries.
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Steelman Ltd.'s clients include Mirage Resorts, Caesar's World,
Sheraton, Sun International, Hard Rock and Harrah's. Our management
and development team also includes experienced developers with
expertise in developing, marketing and managing multi-purpose real
estate facilities.
Our Business Strategy
Our goal is to become a highly profitable casino. We plan to capture
existing market share in Black Hawk and expand the Black Hawk gaming market with
the following business strategy:
o Offer a Las Vegas Style Gaming Facility. Our casino will be built on
the largest single parcel of real estate ever assembled for casino
development in Black Hawk and will offer an upscale and distinctive
design. We intend to attract patrons by offering a spacious,
single-floor Las Vegas style casino featuring both gaming and
non-gaming entertainment;
o Capitalize on Hyatt Name Recognition and Expertise of the Hyatt
Companies. Currently, there are no other casinos in the Black Hawk
market having national name recognition. We believe the Hyatt
companies' expertise and reputation will enable our casino to stand
out among the existing local operators with respect to quality of
service;
o Focus on Opportunities in the Denver Market. A densely populated and
demographically favorable base of potential customers with
above-average household income levels resides in the Denver
metropolitan area. We believe that the casinos in the Black Hawk
market have not yet begun to achieve their potential penetration of
this customer base. The distinctive design of our casino combined with
its upscale amenities is expected to attract a wider cross section of
Denver metropolitan area residents. Specifically, we believe that our
casino will attract individuals in those markets with the opportunity
to make a short, convenient day trip to a casino, where they can
engage in a variety of activities, including fine dining and gaming,
in an entertaining setting. We intend to take advantage of this
customer base by instituting a marketing plan built on preferred
player recognition programs, data base management/direct mail
marketing, innovative slot and table game merchandising and
quantifiable drive-in marketing programs. We believe that when
provided with upscale amenities, these potential customers will stay
in our casino longer and spend more than existing Black Hawk customers
currently spend. In addition, we expect that the ongoing and planned
developments in the Black Hawk area will increase the popularity and
recognition of the overall market. We plan to capitalize on increased
visitation by residents of Denver and the surrounding suburbs as such
developments are completed; and
o Target and Develop Opportunities in the Colorado Tourist Market.
Approximately 23 million tourists visit Colorado annually. Most of our
competitors have not tapped into this market, and we believe that
targeting and developing this market will give us a competitive
advantage. We believe our competitive strengths will allow us to
successfully penetrate this tourist market.
Management of the Risk of Construction Cost Overruns
In accordance with a fully bonded excavation agreement with D.H. Blattner &
Sons, Inc., excavation of the site on which our casino will be located is
scheduled to be substantially complete by the end of July, 2000. To ensure that
construction of our casino is completed on time and on budget, Windsor Woodmont,
LLC entered into a guaranteed maximum price construction agreement which will be
fully bonded with PCL, which agreement has been assigned to us. PCL is one of
the largest general contractors in the United States. Each of Blattner and PCL
will be required to pay liquidated damages in the event of late performance and
will be paid incentive fees for early completion, subject to certain conditions.
In addition, we have set aside approximately $8.0 million of the net proceeds
from the sale of the old notes and the second mortgage notes into completion
reserve accounts to cover any unexpected increases in the construction budget.
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Contribution of Land
During 1997 and 1998, Windsor Woodmont, LLC purchased 48 separate parcels
of land to assemble the 106 acre tract of land with an aggregate of
approximately 119,000 gross gaming-zoned square feet that has been contributed
to us and on which our casino will be built. The total pre-excavation appraised
value of this land is $33.5 million. Pursuant to generally accepted accounting
principles, the land must be contributed to us at its historical cost basis,
which is significantly less than the $33.5 million pre-excavation appraised
value. The $33.5 million is derived from an appraisal report of the market value
of the land as of January 4, 2000.
Sources of Funds and Project Costs in Development of our Casino
The $100.0 million of gross proceeds from the offering of the units,
together with $7.5 million of proceeds from the sale of second mortgage notes to
Hyatt Gaming, approximately $4.1 million of proceeds from the issuance of our
common stock and $3.0 million of proceeds from the issuance of our series B
preferred stock will be utilized as follows:
o after payment of approximately $5.2 million in commissions and
offering expenses, approximately $19.5 million has been paid to
refinance land debt, to satisfy liens on the property that has been
contributed to us by Windsor Woodmont, LLC and to pay
previously-incurred project development costs and offering expenses
($1.0 million by direct payment and approximately $18.5 million from a
closing escrow account with our title insurance company into which
such proceeds were placed.) An additional $3.7 million of budgeted
project costs previously incurred remain outstanding and due as of the
date of this prospectus;
o approximately $58.6 million has been deposited into two separate
construction disbursement accounts, which will be used to finance the
cost to develop, construct, equip and open our casino;
o approximately $7.1 million has been deposited into two separate
completion reserve accounts, to be held as a reserve in case there are
insufficient funds in the construction disbursement accounts to
complete our casino; and
o approximately $24.1 million has been deposited into an interest
reserve account and used to purchase government securities
representing funds which, together with the interest earned on the
government securities, will be sufficient to pay the first four
payments of fixed interest on the notes.
We estimate that the proceeds from the completed financings, along with
anticipated financing in the amount of approximately $20.8 million to purchase
furniture, fixtures and equipment for our casino and $3.0 million from the
issuance of special improvement district bonds by the City of Black Hawk, will
be sufficient to complete the development and construction of our casino
project.
Windsor Woodmont, LLC
Windsor Woodmont, LLC is a Colorado limited liability company that was
formed for the purpose of assembling and developing the land on which our casino
will be built. The members of Windsor Woodmont, LLC are certain individuals and
entities affiliated with real estate development companies based in Dallas,
Texas. These companies are diversified real estate development companies which
over the past 42 years have developed various types of real estate projects,
including hotels, office buildings, mixed-use projects, shopping centers,
multi-family residential housing and land developments. Windsor Woodmont, LLC
currently owns approximately 10.75% of our outstanding shares of common stock.
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The Hyatt Companies
We have entered into a casino management agreement with Hyatt Gaming
Management, Inc. pursuant to which Hyatt Gaming will manage our casino once it
opens. The Hyatt name is associated with excellence in hotels and resorts in
North America, Central America, South America, the Caribbean, Europe, Hawaii and
the Asia Pacific region. The first Hyatt hotel opened in 1957. The Hyatt
companies include Hyatt Corporation and its affiliates, including Hyatt Gaming,
and Hyatt International and its affiliates. The Hyatt companies operate 114
hotels and resorts in 85 cities in the United States, Canada and the Caribbean,
and 79 additional hotels and resorts in 35 countries. The Hyatt companies
collectively accounted for sales of over $4 billion in 1998. In addition, the
Hyatt companies operate seven casinos, including the Grand Victoria Resort &
Casino by Hyatt in Rising Sun, Indiana; the Hyatt Regency Lake Tahoe Resort &
Casino in Incline Village, Nevada; the Hyatt Regency Aruba Resort & Casino in
Palm Beach, Aruba; the Hyatt Regency Casino Thessaloniki in Thessaloniki,
Greece; the Hyatt Cerromar Beach Resort & Casino in Dorado, Puerto Rico; the
Hyatt Regency Lake Las Vegas in Henderson, Nevada; and (under a special
arrangement) Casino Niagara in Ontario, Canada.
None of the Hyatt companies is an issuer of the notes nor has any of the
Hyatt companies reviewed or approved of the notes or of the contents of this
prospectus. The name of our casino, "The Black Hawk Casino by Hyatt," is a trade
name and is not intended to imply that any of the Hyatt companies is a developer
or sponsor of the casino project. None of the Hyatt companies is developing or
sponsoring the project, nor will the Hyatt companies have any responsibility or
liability to make any payments with respect to the notes or otherwise with
respect to purchasers of the notes.
----------------------------------
We were incorporated in the State of Colorado on January 9, 1998. Until the
completion of our casino, our executive offices will be located in care of
Windsor Woodmont, LLC at 12160 North Abrams Road, Suite 516, Dallas, Texas
75243. Our telephone number is (214) 575-8757. We also have opened a small,
temporary office in Black Hawk to oversee the construction of our casino.
--------------------------------------------------------------------------------
The Exchange Offer
--------------------------------------------------------------------------------
The Exchange Offer We are offering to exchange $100.0
million in principal amount of our 13%
first mortgage notes, Series B, due
March 15, 2005, which have been
registered under the federal securities
laws, for $100.0 million principal
amount of our outstanding 13% first
mortgage notes, Series A, due March 15,
2005 which we issued on March 14, 2000,
in a private placement. You have the
right to exchange your old notes for a
principal amount of new notes with
substantially identical terms.
In order for your old notes to be
exchanged, you must properly tender them
prior to the expiration of the exchange
offer. All of the old notes that are
validly tendered and not validly
withdrawn before the expiration of the
exchange offer will be exchanged. We
will issue the new notes on or promptly
after the expiration of the exchange
offer.
--------------------------------------------------------------------------------
10
<PAGE>
--------------------------------------------------------------------------------
Expiration Date The exchange offer will expire at 5:00
p.m., ________ time, on _____________,
2000 unless we decide to extend the
expiration date.
--------------------------------------------------------------------------------
Registration Rights Agreement We sold the old notes on March 14, 2000
in a private placement. At that time, we
signed a registration rights agreement
with the initial purchasers of the
notes, which requires us to conduct this
exchange offer.
This exchange offer is intended to
satisfy those registration rights set
forth in the registration rights
agreement. After the exchange offer is
complete, you will no longer be entitled
to registration rights with respect to
old notes you do not exchange.
--------------------------------------------------------------------------------
If You Fail to Exchange Your If you do not exchange your old notes
Outstanding Notes for new notes in the exchange offer, you
will continue to be subject to the
restrictions on transfer as provided in
the old notes and the indenture
governing those notes. In general, you
may not offer or sell your old notes
unless the offer or sale is registered
under the federal securities laws or
unless those notes are sold in a
transaction exempt from or not subject
to the registration requirements of the
federal securities laws and applicable
state securities laws
--------------------------------------------------------------------------------
Conditions to the Exchange Offer Our obligation to accept for exchange,
or to issue new notes in exchange for,
any old notes is subject to customary
conditions relating to compliance with
any applicable law or any applicable
interpretation by the staff of the
Securities and Exchange Commission, the
receipt of any applicable governmental
approvals and the absence of any actions
or proceedings of any governmental
agency or court which could materially
impair our ability to consummate the
exchange offer. We currently expect that
each of the conditions will be satisfied
and that no waivers will be necessary.
The exchange offer is not conditioned
upon any minimum amount of old notes
being tendered for exchange. See "The
Exchange Offer -- Conditions to the
Exchange Offer."
--------------------------------------------------------------------------------
Procedures for Tendering If you wish to accept the exchange offer
Old Notes and tender your old notes, you must
complete, sign and date the Letter of
Transmittal, or a facsimile of the
Letter of Transmittal, in accordance
with its instructions and the
instructions in this prospectus, and
mail or otherwise deliver the Letter of
Transmittal, or the facsimile, together
with the old notes and any other
required documentation, to the exchange
agent at the address set forth herein.
See "The Exchange Offer -- Procedures
for Tendering Old Notes."
--------------------------------------------------------------------------------
11
<PAGE>
--------------------------------------------------------------------------------
Withdrawal Rights You may withdraw the tender of your old
notes at any time prior to the
expiration date of the exchange offer by
delivering a written notice of your
withdrawal to the exchange agent. You
must also follow the withdrawal
procedures as described under the
heading "The Exchange Offer --
Withdrawal of Tenders."
--------------------------------------------------------------------------------
Resales of New Notes We believe that you will be able to
offer for resale, resell or otherwise
transfer new notes issued in the
exchange offer without compliance with
the registration and prospectus delivery
provisions of the federal securities
laws, provided that:
- you are acquiring the new notes in the
ordinary course of business;
- you are not participating, and have no
arrangement or understanding with any
person to participate, in the
distribution of the new notes; and
- you are not an affiliate of the
company. An affiliate of the company is
a person that "controls or is controlled
by or is under common control with" the
company.
Our belief is based on interpretations
by the Staff of the Commission, as set
forth in no-action letters issued to
third parties unrelated to the company.
The Staff has not considered this
exchange offer in the context of a
no-action letter, and we cannot assure
you that the Staff would make a similar
determination with respect to this
exchange offer.
If our belief is not accurate and you
transfer a new note without delivering a
prospectus meeting the requirements of
the federal securities laws or without
an exemption from these laws, you may
incur liability under the federal
securities laws. We do not and will not
assume or indemnify you against this
liability.
Each broker-dealer that receives new
notes for its own account in exchange
for old notes which were acquired by
--------------------------------------------------------------------------------
12
<PAGE>
--------------------------------------------------------------------------------
such broker-dealer as a result of
market-making or other trading
activities must agree to deliver a
prospectus meeting the requirements of
the federal securities laws in
connection with any resale of the new
notes by that broker-dealer.
If any holder of notes notifies us prior
to the 20th day following consummation
of the exchange offer that it may not
resell the new notes acquired by it in
the exchange offer to the public without
delivering a prospectus and this
prospectus is not appropriate or
available for such resales; or that it
is a broker-dealer and owns notes
acquired directly from us or one of our
affiliates, then we will file with the
SEC a shelf registration statement to
cover resales of the notes by the
holders thereof who satisfy certain
conditions relating to the provision of
information in connection with the shelf
registration statement and keep the same
effective for a period of two years
after effectiveness (or for such shorter
period that will terminate when all of
the notes covered by the shelf
registration statement have been sold
pursuant thereto or cease to be
outstanding).
--------------------------------------------------------------------------------
Exchange Agent SunTrust Bank, Orlando, Florida, is
serving as the exchange agent in
connection with the exchange offer.
--------------------------------------------------------------------------------
Federal Income Tax Consequences Your acceptance of the exchange offer
and the related exchange of your old
notes for new notes will not be a
taxable exchange for United States
federal income tax purposes. You should
not recognize any taxable gain or loss
or any interest income as a result of
the exchange. However, because the old
notes were issued with an original issue
discount, there will be income tax
consequences associated with the new
notes. Please refer to the "U.S. Federal
Income Tax Considerations" section of
this prospectus for a description of the
income tax consequences associated with
the new notes.
-------------------------------------------------------------------------------
The New Notes
--------------------------------------------------------------------------------
Principal Amount $100.0 million aggregate principal
amount of 13% first mortgage notes due
2005.
--------------------------------------------------------------------------------
Maturity Date March 15, 2005.
--------------------------------------------------------------------------------
Interest Payment Dates March 15 and September 15 of each year,
beginning on September 15, 2000.
--------------------------------------------------------------------------------
13
<PAGE>
--------------------------------------------------------------------------------
Fixed Interest Fixed interest will be payable on the
notes at a rate of 13% per annum.
--------------------------------------------------------------------------------
Ranking The notes will be senior secured
obligations, ranking equally in right of
payment with all of our existing and
future senior indebtedness and senior in
right of payment to all of our existing
and future subordinated indebtedness. On
the closing date of this offering,
giving effect to the issuance of the
notes and the second mortgage notes, and
giving pro forma future effect to our
contemplated financing for furniture,
fixtures and equipment for our casino in
the amount of $20.8 million, and the
contemplated issuance of the special
improvement district bonds in the amount
of $3.0 million, we will have
approximately $131.3 million of total
indebtedness. Of this amount,
approximately $123.8 million will
constitute senior secured indebtedness
comprised of (1) the notes, (2) the
furniture, fixtures and equipment
financing, and (3) the special
improvement district bonds, and $7.5
million will constitute subordinated
indebtedness comprised of the second
mortgage notes held by Hyatt Gaming,
which will be secured by a first
priority lien on the cash in the Hyatt
Gaming construction disbursement and
completion reserve accounts in which
approximately $5.9 million of such loan
proceeds will be deposited. We will have
no senior unsecured indebtedness.
--------------------------------------------------------------------------------
Security The notes will, with certain exceptions,
be secured by a first priority lien on
substantially all of our existing and
future assets, including, without
limitation:
o a pledge of approximately $83.9
million of the net proceeds of this
offering and the proceeds from the
issuance of our common stock and our
series B preferred stock, which will be
deposited into restricted disbursement
accounts as described below, to be used
to fund construction and development of
our casino and to pay the first four
payments of fixed interest on the notes;
--------------------------------------------------------------------------------
o substantially all of the assets that
will comprise our casino, other than (1)
certain furniture, fixtures and
equipment, (2) the assets of our future
unrestricted subsidiaries, and (3)
assets subject to certain permitted
liens;
--------------------------------------------------------------------------------
14
<PAGE>
--------------------------------------------------------------------------------
o certain agreements pursuant to which
our casino will be constructed; and
--------------------------------------------------------------------------------
o licenses and permits relating to the
construction, operation and management
of our casino, other than our Colorado
gaming and liquor licenses.
--------------------------------------------------------------------------------
The notes will also be secured by a
second priority lien on approximately
$5.9 million of net proceeds from the
second mortgage notes issued to Hyatt
Gaming, which will be deposited into
separate construction disbursement and
completion reserve accounts.
--------------------------------------------------------------------------------
Optional Redemption Prior to March 15, 2002, we may redeem
up to 35% of the notes with the proceeds
of an equity offering at a redemption
price of 113% of the principal amount of
the redeemed notes. On or after March
15, 2002, we may redeem some or all of
the notes at any time at a premium that
will decrease over time as set forth in
the section "Description of Notes--
Optional Redemption."
--------------------------------------------------------------------------------
Gaming Redemption The notes may be subject to mandatory
disposition and redemption requirements
following certain determinations by any
gaming authority.
--------------------------------------------------------------------------------
Asset Sales and Events of Loss If we sell certain assets or experience
certain events of loss, we may be
required to offer to repurchase notes
out of the proceeds from sales of our
assets at the prices listed in the
section "Description of Notes --
Repurchase at the Option of Holders --
Asset Sales" and "-- Events of Loss."
--------------------------------------------------------------------------------
Excess Cash Purchase Offers After our casino becomes operational, we
will, on an annual basis, be required to
offer to repurchase notes with a portion
of our excess cash flow at 101% of the
principal amount plus accrued and unpaid
interest, if any.
--------------------------------------------------------------------------------
Basic Covenants of the Indenture We will issue the notes under an
indenture that will, among other things,
restrict our ability to:
--------------------------------------------------------------------------------
o borrow money or issue preferred stock;
--------------------------------------------------------------------------------
o pay dividends on or repurchase our
capital stock;
--------------------------------------------------------------------------------
15
<PAGE>
--------------------------------------------------------------------------------
o make investments;
--------------------------------------------------------------------------------
o use our assets as security in other
transactions;
--------------------------------------------------------------------------------
o transact with affiliates;
--------------------------------------------------------------------------------
o enter into sale and leaseback
transactions;
--------------------------------------------------------------------------------
o issue capital stock of subsidiaries;
and
--------------------------------------------------------------------------------
o sell assets or enter into mergers or
consolidations.
--------------------------------------------------------------------------------
See "Description of Notes-- Certain
Covenants."
--------------------------------------------------------------------------------
Cash Collateral and Approximately $89.8 million has been
Disbursements Agreements deposited into restricted disbursement
accounts as described below. These
accounts will be pledged as security for
our obligations under the notes. The
funds in the accounts will be disbursed
in accordance with the terms of the cash
collateral and disbursement agreement.
See "Description of Notes -- Cash
Collateral and Disbursement Agreement."
--------------------------------------------------------------------------------
Construction Disbursement Account Approximately $53.3 million has been
deposited in the construction
disbursement account. These funds will
be used to finance the cost to develop,
construct, equip and open our casino.
--------------------------------------------------------------------------------
Hyatt Gaming Construction Approximately $5.3 million has been
Disursement Account deposited in a separate construction
disbursement account. These funds will
be disbursed on a pro rata basis with
funds from the construction disbursement
account to finance the cost to develop,
construct, equip and open our casino.
--------------------------------------------------------------------------------
Completion Reserve Account Approximately $6.5 million has been
deposited in the completion reserve
account. These funds will be disbursed
on a pro rata basis with the remaining
funds from the Hyatt Gaming completion
reserve account to complete our casino
if there are insufficient funds in the
construction disbursement account and
the Hyatt Gaming construction
disbursement account.
--------------------------------------------------------------------------------
Hyatt Gaming Completion Approximately $0.6 million has been
Reserve Account deposited in a separate completion
reserve account. These funds will be
disbursed on a pro rata basis with the
funds from the completion reserve
account to complete our casino if there
are insufficient funds in the
construction disbursement account and
the Hyatt Gaming construction
disbursement account.
--------------------------------------------------------------------------------
16
<PAGE>
--------------------------------------------------------------------------------
Interest Reserve Account Approximately $24.1 million has been
deposited in the interest reserve
account and used to purchase government
securities. These funds, together with
the interest earned on such government
securities, will be used to pay the
first four payments of fixed interest on
the notes.
--------------------------------------------------------------------------------
For a more detailed discussion of the new notes, see "Description of the Notes."
--------------------------------------------------------------------------------
Risk Factors You should read the "Risk Factors"
section of this prospectus, as well as
other cautionary statements throughout
the entire prospectus, to ensure that
you understand the risks associated with
the notes.
--------------------------------------------------------------------------------
17
<PAGE>
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. You should carefully consider the following risks, together with all other
information included in this prospectus, before tendering your old notes in the
exchange offer. The realization of any of the risks described below could have a
material adverse effect on our business, results of operations and future
prospects and could limit our ability to pay interest and/or principal on the
notes.
You May Not Be Able to Sell Your Old Notes if You Do Not Exchange Them for
Registered Notes in the Exchange Offer
If you do not exchange your old notes for new notes in the exchange offer,
your old notes will continue to be subject to the restrictions on transfer as
stated in the legend on the old notes. In general, you may not offer or sell the
old notes unless they are:
o registered under the Securities Act of 1933;
o offered or sold pursuant to an exemption from the Securities Act of
1933 and applicable state securities laws; or
o offered or sold in a transaction not subject to the Securities Act of
1933 and applicable state securities laws.
We do not currently intend to register the old notes under the Securities
Act of 1933. In addition, holders who do not tender their old notes, except for
certain instances involving the initial purchasers or holders of old notes who
are not eligible to participate in the exchange offer or who do not receive
freely transferable new notes pursuant to the exchange offer, will not have any
further registration rights under the registration rights agreement or otherwise
and will not have rights to receive additional interest.
The Market for Old Notes May Be Significantly More Limited after the Exchange
Offer
If old notes are tendered and accepted for exchange pursuant to the
exchange offer, the trading market for old notes that remain outstanding may be
significantly more limited. As a result, the liquidity of the old notes not
tendered for exchange may be adversely affected. The extent of the market for
old notes and the availability of price quotations would depend upon a number of
factors, including the number of holders of old notes remaining outstanding and
the interest of securities firms in maintaining a market in the old notes. An
issue of securities with a similar outstanding market value available for
trading, which is called the "float," may command a lower price than would be
comparable to an issue of securities with a greater float. As a result, the
market price for old notes that are not exchanged in the exchange offer may be
affected adversely as old notes exchanged pursuant to the exchange offer reduce
the float. The reduced float also may make the trading price of the old notes
that are not exchanged more volatile.
You Cannot Be Sure that an Active Trading Market Will Develop for the New Notes
We are offering the new notes to the holders of the old notes. The old
notes were offered and sold in March 2000 to institutional investors and are
eligible for trading in the Private Offerings, Resale and Trading through
18
<PAGE>
Automatic Linkages (PORTAL) Market, a screen-based market operated by the
National Association of Securities Dealers. The PORTAL market is limited to
qualified institutional investors as defined by Rule 144A of the Securities Act
of 1933.
We do not intend to apply for a listing of the new notes on a securities
exchange or on any automated dealer quotation system. There is currently no
established market for the new notes and we cannot assure you as to the
liquidity of markets that may develop for the new notes, your ability to sell
the new notes or the price at which you would be able to sell the new notes. If
such markets were to exist, the new notes could trade at prices that may be
lower than their principal amount or purchase price depending on many factors,
including prevailing interest rates and the markets for similar securities. We
expect that the new notes will trade on the over-the-counter market. U.S.
Bancorp Libra has advised us that it currently intends to make a market with
respect to the new notes. However, it is not obligated to do so, and any market
making with respect to the new notes may be discontinued at any time without
notice. In addition, such market making activity will be subject to the limits
imposed under the Exchange Act. Moreover, you cannot be sure that the new notes
will trade as one class with the old notes.
The liquidity of, and trading market for, the new notes also may be
adversely affected by changes in the overall market for high yield securities
and by changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, we cannot assure you that an
active trading market will develop for the new notes.
Our substantial debt could adversely affect our financial condition and
prevent us from fulfilling our obligations under the notes, our outstanding
warrants or our other debt.
We currently have a significant amount of debt. In addition to our
obligation to pay principal and interest on the notes, we are obligated under
(1) the second mortgage notes held by Hyatt Gaming, (2) the contemplated
furniture, fixtures and equipment financing, and (3) the contemplated incurrence
of the special improvement district bonds. In addition, under the terms of the
warrant agreement, we are obligated to repurchase the warrants which were issued
in conjunction with the sale of the old notes. We will also be incurring other
project costs, including construction and operating expenses in connection with
developing, constructing and opening our casino.
The following chart shows certain important credit statistics. The
"Current" balances represent the actual balances as of March 31, 2000. The "As
Adjusted" balances represent the Current" balances plus (1) the $20.8 million
contemplated furniture, fixtures and equipment financing, and (2) the
contemplated issuance of $3.0 million of special improvement district bonds by
the City of Black Hawk:
------------------------------------------------------------------------------
Current As Adjusted
------------------------------------------------------------------------------
(Dollars in millions)
------------------------------------------------------------------------------
Total face amount of debt (including
mandatorily receemable $ 113.8 $ 137.6
preferred stock)
--------------------------------------------------------------------------------
Stockholders' equity ....................... $ 6.7 $ 6.7
------------------------------------------------------------------------------
Total debt to equity ratio ................. 16.99x 20.54x
------------------------------------------------------------------------------
19
<PAGE>
Our substantial debt could have important consequences for you. For example,
it could:
o make it more difficult for us to satisfy our obligations with respect
to the notes;
o increase our vulnerability to general adverse economic and industry
conditions;
o require us to dedicate a substantial portion of our cash flow from
operations to service our debt, thereby reducing funds available for
other business purposes;
o limit, along with the financial and other restrictive covenants
contained in our indebtedness, our ability to borrow additional funds;
o limit our flexibility in planning for, and reacting to, changes in our
business, including capital expenditures;
o place us at a competitive disadvantage compared to our competitors
that have less debt or a lower cost of capital; and
o limit our ability to obtain additional future financing for working
capital, capital expenditures, general corporate or other purposes.
Despite our current debt level, we may still be able to incur more debt. This
could increase the risks described above.
We may be able to incur additional debt in the future. The indenture
governing the notes contains financial and other restrictive covenants, but does
not fully prohibit us from incurring additional debt. We can incur debt for
certain specific purposes, including in connection with the contemplated special
improvement district bonds, the contemplated furniture, fixtures and equipment
financing and standby letters of credit or surety bonds. Additionally, if
certain conditions are met, we can incur additional debt in connection with the
construction of a hotel tower and related amenities. If new debt is added to our
current levels, the related risks that we and you now face could increase.
We will require a significant amount of cash to service our debt and grow our
business. Our inability to generate adequate cash or refinance our debt may
impact our ability to repay the notes or the second mortgage notes, or to
repurchase our outstanding warrants pursuant to the warrant agreement.
Our ability to make payments on or to refinance the notes or the second
mortgage notes, or to repurchase the warrants pursuant to the warrant agreement
will depend on our ability to generate cash and secure financing in the future.
Our ability to generate cash will depend upon:
o the successful and timely completion of our casino;
o our future operating performance;
o the demand for the services we provide;
o the state of the economy;
o competition, particularly in Black Hawk; and
o regulatory and other factors affecting our operations and business.
Many of these factors are beyond our control.
If the construction budget for our casino increases significantly or if we
encounter delays in completing and opening our casino, we may not have the funds
to make payments on the notes or our other debt or to fulfill our obligation to
repurchase the notes under certain circumstances.
20
<PAGE>
It is difficult for us to predict with accuracy our casino's potential
earning ability given the inherent uncertainties and variables in the factors
affecting its earning ability. If our casino cannot generate sufficient cash
flow, we may be forced to reduce or delay planned capital expenditures,
restructure or refinance our debt or obtain additional equity capital. We might
not be able to implement any of these alternatives on satisfactory terms or at
all.
We could encounter problems during construction that could delay construction or
substantially increase the construction costs required to build our casino.
Windsor Woodmont, LLC entered into an agreement with Blattner to perform
excavation and other site work for our casino, and an agreement with PCL to
construct our casino. These agreements have been assigned to us. The excavation
contract provides for work to be completed by Blattner for a stipulated sum of
$8.7 million while the budgeted construction costs for the work to be completed
by PCL is $42.2 million. The price and/or schedule of each of these agreements
may be increased and/or extended if:
o the plans and specifications for our casino change, or the project is
otherwise delayed;
o the project encounters geological, environmental, excavation or other
unforeseen problems; or
o other customary contingencies set forth in the agreements occur during
construction.
The construction of our casino involves significant risks such as cost
overruns, delay in receipt of governmental approvals, changes in laws or
regulations applicable to the project, private legal challenges, shortages of
materials or skilled labor, labor disputes or work stoppages, unforeseen
environmental or engineering conditions, conditions resulting from historical
mining activities, natural disasters, construction scheduling problems and
weather interferences. If any of these events occur, there could be a delay in
the construction of our casino, a substantial increase in the costs related to
the construction of our casino and/or a failure to complete the casino.
We have deposited approximately $58.6 million into the construction
disbursement accounts. Funds will be disbursed from the construction
disbursement accounts upon satisfaction of conditions, including the approval of
an independent construction consultant. The independent construction consultant
will monitor the construction process and verify that the construction time line
and budget are within specified parameters. However, if the independent
construction consultant fails to perform its responsibilities as required, funds
could be disbursed from the construction disbursement accounts without our
having satisfied all applicable requirements. This could cause us to prematurely
deplete our construction disbursement accounts, requiring us to use some or all
of the funds in our completion reserve accounts.
Additionally, although have agreed in the indenture governing the notes to
obtain and maintain insurance customary and appropriate for our business, we
cannot assure you that this insurance will be available or adequate to cover all
perils to which our business or our assets might be subjected. Any losses we
incur that are not covered by insurance consequently increase our operating
costs.
21
<PAGE>
The mountainous terrain of the proposed casino site may result in delays and
increased construction costs.
The proposed casino site is located on mountainous terrain in the Rocky
Mountains on an area previously used for mining. Special challenges and risks
are associated with construction on this terrain. We may encounter mine tunnels
or other structural aberrations, mine shafts filled with water that has been
contaminated with by-products of mining operations, unstable geological
conditions or other significant problems that can be discovered only after the
commencement of excavation. If any of these matters are uncovered or
exacerbated, additional measures may be required to remediate and stabilize the
site. These measures may increase the costs of excavation significantly and may
also cause considerable delay to the excavation and construction process.
Pursuant to the excavation agreement with Blattner, we will assume the risk of
any cost increases resulting from any unforeseen excavation problems, including
those discussed above.
In addition, our casino site currently includes a hillside that must be
removed in connection with the excavation. The stabilization of the remaining
hillside during and after excavation could cause significant difficulties and
result in delays and increased costs. Excavation is an inherently dangerous and
unpredictable process and we cannot assure you that there will not be any
unforeseen events or circumstances that could result in delays or increased
cost. As a result, we cannot assure you that our casino will be completed within
our budget, in a timely manner or at all.
We may be unable to obtain or maintain all the licenses, permits and
authorizations required by the Colorado Gaming Commission to open and operate
our casino. Additionally, under Colorado gaming laws, you may be required to
submit to a background investigation regarding your suitability as a note holder
or warrant holder which could delay any applications for licenses, permits or
other authorizations.
There is no guarantee that the Colorado Gaming Commission will grant us a
gaming license. As a matter of law, a Colorado gaming license is a
non-transferable, revocable privilege in which the licensee acquires no vested
interest. Even if the Colorado Gaming Commission grants us a license, the
Colorado Gaming Commission could choose not to renew that license if it has
concerns about our management, operations, business practices or associations.
The current policy of the Colorado Gaming Commission and the Colorado
Gaming Division does not require note holders to submit to a background
investigation for a suitability determination. The Colorado Gaming Commission
and the Colorado Gaming Division could change that policy at any time and
require note holders to undergo a background investigation. Additional
background investigations could delay the Colorado Gaming Commission's decision
on our application for a gaming license. The failure of a note holder, a warrant
holder, or a shareholder to cooperate with or make timely disclosures to the
Colorado Gaming Division could delay the issuance of a gaming license for our
casino.
In addition, note holders who also own our common stock, whether by the
exercise of a detachable warrant or by any other means, will at least be
required to submit a limited owner application, which will be reviewed by the
Colorado Gaming Commission and the Colorado Gaming Division. The current policy
of the Colorado Gaming Commission and the Colorado Gaming Division does not
require shareholders who are institutional investors to submit to a full
22
<PAGE>
background investigation regarding their suitability. The Colorado Gaming
Commission and the Colorado Gaming Division could change that policy at any time
and require institutional investors to undergo background investigations.
Additional background investigations could delay the Colorado Gaming
Commission's decision on our application for a gaming license.
Our shareholders will be required to submit owner applications, which will
be reviewed by the Colorado Gaming Commission and the Colorado Gaming Division.
Despite current policy, the Colorado Gaming Commission and the Colorado Gaming
Division have the authority to require any person who is one of our shareholders
and any of our executive employees or agents having the power to exercise a
significant influence over decisions concerning any part of the operation of our
casino to undergo a full background investigation, regardless of whether the
shareholder is an institutional investor and regardless of the number of shares
held, which could further delay the gaming application process.
We filed our application for a gaming license on June 15, 2000. There is no
guarantee that the gaming license will be obtained before Fall of 2001, at which
time we expect to open our casino, or at all. Our application for a gaming
license could be delayed if the Colorado Gaming Commission or the Colorado
Gaming Division determines that a suitability problem exists with respect to any
investor. Accordingly, no person will be allowed to transfer their equity
ownership interest in us without prior approval of the Colorado Gaming
Commission and the Colorado Gaming Division.
Our failure to timely obtain approval of all required licenses to conduct
limited gaming on our premises would have a material, adverse effect upon our
operations.
Our CEO has been involved with other casinos, including one in Black Hawk, that
were not successful and such past involvement could cause a delay in his
obtaining a license.
Daniel P. Robinowitz, our Chairman of the Board, Chief Executive Officer
and President, has had prior involvement with other casinos. Specifically, Mr.
Robinowitz was a director, executive officer and a minority shareholder in
Hemmeter Enterprises, Inc., which owned and operated Bullwhackers Casino in
Black Hawk and Bullwhackers Casino in Central City through separate
subsidiaries, and Hemmeter Enterprises' subsidiary, Grand Palais Riverboat Inc.,
which operated a river boat casino based in Louisiana. Hemmeter Enterprises and
Grand Palais Riverboat filed for corporate reorganization under the U.S.
bankruptcy laws in November 1995, 18 months after Mr. Robinowitz's resignation
as a director and executive officer of such entities. Mr. Robinowitz was also a
minority shareholder in Grand Palais Casino, Inc. which held a minority interest
in Harrah's Jazz Company. Harrah's Jazz Company sought to develop a land-based
casino in New Orleans. Harrah's Jazz Company opened a temporary casino in May
1995, but filed for Chapter 11 reorganization in November 1995.
We anticipate that the Colorado Gaming Division will investigate Mr.
Robinowitz's involvement in Hemmeter Enterprises and Grand Palais Riverboat and
his indirect minority interest in Harrah's Jazz Company, even though Mr.
Robinowitz was not a director, executive officer or in control of these entities
at the time they filed for bankruptcy, and even though the Colorado Gaming
Division found Mr. Robinowitz suitable as an associated person when Hemmeter
Enterprises applied to the Colorado Gaming Commission for a gaming license in
December 1991 to operate Bullwhackers Casino.
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The investigation of Mr. Robinowitz could hinder or delay our ability to
obtain a gaming license within our current construction schedule. In the event
that one of our officers or directors is not found suitable within 17 months of
the issuance of the old notes, such officer or director must be removed. The
failure to remove such officer or director would constitute an event of default
under the indenture governing the notes.
We compete with many other gaming facilities and other forms of gaming in Black
Hawk and other cities in Colorado that have legalized gaming.
Competition in Black Hawk is intense. Certain of our current and future
competitors have or may have more gaming experience than us or Hyatt Gaming and
the other Hyatt companies and/or greater financial resources.
Of the 19 gaming facilities operating in Black Hawk as of December 31,
1999, three have over 700 gaming positions, one of which also offers hotel
accommodations. We believe that these larger gaming facilities will be our main
competitors. These larger gaming facilities all have on-site or nearby parking
and have brand names established in the local market, such as the Isle of Capri,
The Lodge at Black Hawk and Colorado Central Station. In addition, we will
compete with the Riviera Black Hawk Casino, which opened in early February 2000
and features approximately 1,000 slot machines, and the Mardi Gras Casino, which
opened in early March 2000 and features approximately 700 slot machines.
Colorado Central Station, which has been one of the most successful casinos in
Colorado, is located near our casino and has approximately 750 slot machines, 15
gaming tables and approximately 700 valet parking spaces. The Isle of Capri,
which opened in December 1998, is located near our casino and features
approximately 1,100 slot machines, 14 table games and 1,100 parking spaces.
Other competitors in Black Hawk include Gilpin Hotel Casino, Canyon Casino
(formerly operated by Harrah's), Fitzgeralds Casino and Bullwhackers Black Hawk.
Casinos offering hotel accommodations for overnight stay may have a
competitive advantage over our casino. The number of hotel rooms currently in
Black Hawk is approximately 50, with only the Lodge at Black Hawk providing
hotel accommodations to patrons. The Isle of Capri is scheduled to complete a
237 room hotel addition in late summer 2000. Harvey's Wagon Wheel Casino Hotel,
located in Central City, has 118 hotel rooms.
We may also face increasing competition from casinos in Central City.
Historically, Black Hawk has enjoyed an advantage over Central City because
customers have to drive by and through Black Hawk to reach Central City. On
November 2, 1999, the voters in Central City granted authority to the Business
Improvement District for the sale of approximately $45.2 million in bonds which
would be allocated towards the planning design and construction of a nine mile
roadway directly connecting Central City with Interstate 70, which could result
in improved access to both Central City and Black Hawk. As a result, patrons
would be able to reach Central City without driving through Black Hawk if the
road were to be built. Our casino will also compete, to a limited extent, with
the casinos located in Cripple Creek, because both Black Hawk and Cripple Creek
compete for patrons from Denver.
Currently, limited stakes gaming in Colorado is constitutionally authorized
in Central City, Black Hawk, Cripple Creek and two Native American reservations
in southwest Colorado. However, gaming could be approved in other Colorado
communities in the future. The legalization of gaming closer to Denver would
likely have a material adverse impact on our future operating results. Our
casino will also indirectly face competition from other forms of gaming,
including the Colorado state-run lottery, charitable bingo and horse and dog
racing, as well as other forms of entertainment.
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Because we do not have any prior operating history, our business is difficult to
evaluate.
We were formed in 1998. We currently have no operations. In addition, we do
not have, and Hyatt Gaming and the other Hyatt companies do not have, any
experience in operating or marketing a business in Black Hawk. As a result, you
must evaluate our prospects in light of the risks and difficulties frequently
encountered by companies in the early stages of substantial real estate
development projects. These risks include, but are not limited to, unanticipated
environmental, excavation, construction, cost overrun, licensing, permitting,
regulatory and operating problems. We cannot assure you that we or Hyatt Gaming
and its affiliates will be able to successfully operate or market our casino,
that our casino will be profitable or that we will generate sufficient cash flow
to pay interest and principal on our indebtedness.
We cannot assure you that the Colorado Gaming Division will find Hyatt
Gaming suitable to manage our casino. We will depend on Hyatt Gaming to staff
and manage our casino. We cannot assure you that the operations of our casino
will be successful or profitable or that our casino management agreement with
Hyatt Gaming will not be terminated or that Hyatt Gaming will always staff and
manage our casino. Even if Hyatt Gaming does not manage our casino profitably,
we do not have the ability to terminate the Hyatt Gaming casino management
agreement on that basis.
We cannot assure you that the Colorado Gaming Division will find Hyatt
Gaming suitable to manage our casino. If Hyatt Gaming is not found suitable to
manage our casino, we would be permitted to terminate the Hyatt Gaming casino
management agreement and would be required to engage another manager that might
not have the same experience or expertise, may not have the same national name
recognition and may not be engaged under a casino management agreement with
terms similar to those of the Hyatt Gaming casino management agreement.
None of the Hyatt companies is developing or sponsoring the project. We
will depend upon Hyatt Gaming, as a professional manager, to staff and manage
our casino. Although we have entered into a 15-year casino management agreement
with Hyatt Gaming subject to renewal terms under certain circumstances, we
cannot assure you that the casino management agreement will remain in effect for
the duration of its stated term or that Hyatt Gaming will profitably manage our
casino. Hyatt Gaming may terminate or assign the casino management agreement
upon the occurrence of events described in our casino management agreement, some
of which are not in our control. If the casino management agreement is
terminated early, the loss of the services of Hyatt Gaming, or an inability to
attract and retain another nationally recognized professional manager, could
adversely affect us. We cannot assure you that we will be able to maintain our
relationship with Hyatt Gaming or attract another nationally recognized manager,
if necessary.
The casino management agreement contains provisions that grant Hyatt Gaming
on-going approval rights, or the right to waive its right of approval, with
respect to the design and related specifications of our casino. Subject to
certain conditions, Hyatt Gaming could require us to request changes to the
construction agreement that could result in increased costs of construction,
delay the progress of construction and/or impair our ability to implement
changes that would result in cost savings. The casino management agreement
further provides that Hyatt Gaming is not responsible for our budgets or
financial projections and that Hyatt Gaming is not responsible for any financial
forecasts in connection with this offering. If our budgets are inaccurate, our
obligations under the casino management agreement and under the indenture
governing the notes may require us to obtain additional funds to operate our
casino. The indemnification provisions of the casino management agreement
obligate us to indemnify Hyatt Gaming and its affiliates for certain losses and
events. The casino management agreement provides that we must indemnify Hyatt
Gaming and its affiliates from all liabilities other than those caused by their
(1) gross negligence, (2) willful misconduct, (3) willful or reckless violations
of legal requirements, or (4) breach of the casino management agreement. In
addition, Hyatt Gaming and its affiliates are permitted to compete with our
casino in Denver or within a five mile radius thereof. Currently, gaming is not
permitted in the Denver area, but we cannot assure you that gaming will not be
legalized in that area in the future.
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To date, most casinos managed or operated by Hyatt Gaming or other Hyatt
companies are operated in association with an on-site Hyatt hotel. This
association permits these properties access to certain Hyatt hotel system-wide
services, such as the Hyatt hotel chain national sales force and the Hyatt hotel
chain reservations system. Our casino does not include a Hyatt hotel. The
project, therefore, does not participate in, and may not benefit from, such
chain services normally provided to Hyatt hotels.
Even if Hyatt Gaming does not manage our casino profitably or does not
otherwise meet performance criteria, we do not have the ability to terminate the
Hyatt Gaming casino management agreement on that basis.
None of the Hyatt companies is obligated to make any payment on the notes or to
make any other payments or equity contributions to or for us or our operations.
The Hyatt companies will not participate in servicing the principal or
interest due on the notes. None of the Hyatt companies has any obligations to
make any payments of any kind to the holders of the notes or to the holders of
the warrants, or to make any other payments or equity contributions to us or our
operations.
Adverse weather, road conditions and infrastructure limitations could delay the
construction of our casino or affect our ability to attract customers. We expect
the highest level of customer visits during the summer.
The location of our casino in the Rocky Mountains creates a risk that it
will be subject to inclement weather, particularly snow. Adverse weather
conditions could delay the construction of our casino, resulting in cost
overruns or a delayed opening date. Severe weather conditions could also cause
significant physical damage to our casino or result in reduced hours of
operation or access to our casino. Black Hawk is served by winding mountain
roads that require extremely cautious driving, particularly in bad weather, and
are subject to driving restrictions and closure. Congestion on the roads leading
to Black Hawk is common during the peak summer season, holidays and other times
and may discourage potential customers from traveling to our casino,
particularly if road construction is in process.
Black Hawk is in the process of planning and constructing significant road
and other infrastructure improvements necessary to manage the significant
increases in visitors to Black Hawk. We cannot assure you that such improvements
will be made prior to the completion of our casino. In addition, the
construction of road and other infrastructure improvements may affect the
construction of our casino.
We expect the highest level of customer visits to occur during the summer
months, because of the more favorable weather conditions. A poor summer season,
due to any reason, including events outside our control, would adversely affect
our business.
Local economic and competitive conditions, as well as other conditions and
circumstances beyond our control could adversely affect our business.
We will be entirely dependent upon our casino for all of our cash flow.
Therefore, we will be subject to greater risks than a geographically diversified
gaming company. These greater risks include those caused by any of the risks
described in this section, including:
o local economic and competitive conditions;
o inaccessibility due to road construction or closure on primary access
routes;
o changes in local and state governmental laws and regulations;
o natural and other disasters;
o a decline in the number of residents near or visitors to Black Hawk;
or
o a decrease in gaming activities in Black Hawk.
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Any of the factors outlined above could adversely affect our ability to
generate sufficient cash flow to make payments on the notes pursuant to the
indenture or with respect to our other debt.
We face risks that a mining claim may adversely affect our property rights.
Black Hawk is located in an area that was actively mined for many years.
Conflicts between mining claims that have certain statutory priorities and
surface rights derived from the town can affect the use or ownership of property
located in Black Hawk. These conflicts are the result of mining claims which
pre-date the township patent granted on April 11, 1873.
Although the government agencies responsible for analyzing such claims have
been reluctant to adversely affect ownership rights that have been treated as
settled, occasional claims based on asserted mining rights have been made
adverse to the interests of casino developments and other property in Black
Hawk. These mining claims may be raised in respect of the land we own in Black
Hawk. If raised, these claims or similar challenges to title could distract our
management and delay construction and could force us to make payments to settle
the claims. If successful, these claims could significantly delay or prevent
completion of our casino or increase the costs associated with the development
and construction of our casino. We will not be able to obtain title insurance
against all such claims.
If we become bankrupt, you may be unable to collect the full value of your notes
by foreclosing upon collateral.
The new notes will be secured by a first priority lien on substantially all
of our assets other than (1) certain furniture, fixtures and equipment, (2) the
assets of our future unrestricted subsidiaries, and (3) assets subject to
certain permitted liens, as well as by a second priority lien on the loan
proceeds from the issuance of the second mortgage notes. Under Colorado gaming
laws, the trustee under the indenture governing the notes could be precluded
from or otherwise limited or delayed in exercising powers of attorney or selling
collateral, including slot machines, at a foreclosure sale since only persons
licensed by the Colorado gaming authorities may have slot machines in their
possession. In addition, the trustee may encounter difficulty in selling
collateral due to various legal restrictions, including requirements that the
purchaser or the operator of the gaming facility be licensed by state
authorities or that prior approval of a sale or disposition of collateral be
obtained. If the trustee sought to operate, or retain an operator for, our
casino, the trustee or its agents would be required to be licensed under
Colorado gaming laws in order to conduct gaming operations in our casino. Since
potential purchasers who wish to operate our casino must satisfy such
requirements, the number of potential purchasers in a sale of our casino could
be less than in the sale of other types of facilities. Additionally, these
requirements may delay the sale of, and may adversely affect the price paid for,
the collateral.
In addition to gaming law restrictions, the ability of the trustee to
repossess and dispose of collateral will be subject to the procedural and other
restrictions of state real estate law and commercial law and we may not
terminate the casino management agreement upon a foreclosure. If the holders of
the notes were undersecured, the trustee may be entitled to a deficiency
judgment under certain circumstances after application of any proceeds from any
foreclosure sale. There can be no assurance, however, that the trustee would
successfully obtain a deficiency judgment, and we cannot predict what the amount
of such judgment would be. In addition, we might not be able to satisfy any such
judgment. The right of the trustee to repossess and dispose of the collateral
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following an event of default is likely to be significantly impaired by
applicable bankruptcy laws if a proceeding under the United States Bankruptcy
Code were to be commenced by or against us prior to or possibly even after the
trustee has repossessed and disposed of the collateral. In such bankruptcy
proceeding, the automatic stay would prohibit the trustee from repossessing or
disposing of the collateral without the leave of the bankruptcy court. If the
holders of the notes were undersecured in a bankruptcy case, the trustee will be
entitled to assert a secured claim to the extent of the value of the collateral
and an unsecured claim for any deficiency. In view of the broad discretionary
powers of a bankruptcy court, we cannot predict, following commencement of and
during a bankruptcy case:
o whether any full or partial payments under the notes would be made;
o whether or when the trustee could foreclose upon or sell the
collateral;
o whether the term of the notes could be altered in a bankruptcy case
without the consent of note holders; or
o whether or to what extent holders of the notes would be compensated
for any delay in payment or loss of value of the collateral.
If a bankruptcy court were to determine that the value of the collateral is
not sufficient to repay all amounts due on the notes, the holders of the notes
would be undersecured to the extent of any such deficiency. Applicable federal
bankruptcy laws do not permit the payment and/or accrual of interest, costs and
attorneys' fees to the holders of unsecured or undersecured pre-petition claims
against the debtor during the debtor's bankruptcy case.
Under the provisions contained in the indenture governing the notes
regarding defeasance, we may discharge our obligations under the indenture or
have our obligations released with respect to certain covenants in the
indenture. In order to do either of these, among other things, we must deposit
with the trustee enough money or securities to make all of the required payments
on the notes through maturity or a redemption date. It is possible that the
deposit may be subject to recovery or avoidance as a preference or fraudulent
transfer by us, a bankruptcy trustee or our creditors under certain
circumstances. For example, if the amount of the deposit exceeds the value of
the collateral which has been pledged to the holders of the notes, it is
possible that the excess may be subject to recovery or avoidance as a preference
or fraudulent transfer if we later are in bankruptcy. In addition, because the
holders of the notes will release their liens at the time the funds are
deposited into the account, it is possible that a bankruptcy court would
consider a payment on the notes at redemption or maturity (if the payment is not
contemporaneous with the release of the liens) subject to recovery or avoidance
as a preference or fraudulent transfer by us, a bankruptcy trustee or our
creditors. In addition, it is possible that if we receive the funds for the
deposit for a third party, and that third party subsequently becomes a debtor in
a bankruptcy case, the deposit may be recoverable under certain circumstances by
the third party or the bankruptcy trustee or creditors of that third party if
the original transfer from the third party to us is deemed to be a preference or
fraudulent conveyance. Furthermore, if we commenced a bankruptcy proceeding
after the deposit was paid but before redemption or maturity of the notes, it is
possible that a bankruptcy court would allow us to use the deposited funds
during the pendency of the bankruptcy case as cash collateral, subject to the
right of the holders of the notes to receive adequate protection of their
interest in the deposit.
Certain of our affiliates are involved in activities that are related to
our business and assets. In addition, we have overlapping officers and directors
with our affiliates. In the event that one of our affiliates is the subject of a
proceeding under the Bankruptcy Code, the creditors of such affiliate or the
bankruptcy trustee may argue that the assets and liabilities of the various
affiliated entities, including our company, should be consolidated and our
assets made available for satisfaction of claims against the various affiliated
entities. Although we believe we are a distinct and separate legal entity from
our affiliates, there can be no assurance that in the event of a bankruptcy case
of one of our affiliated entities, a bankruptcy court would not order
consolidation of our assets with those of our affiliates.
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Federal and state statutes allow courts, under special circumstances, to void
transfers or obligations.
Fraudulent conveyance and avoidance laws permit a court to avoid or nullify
any transfer of a property interest, including the grant of a security interest
or other lien on property, if the court determines that the transfer was made by
a fraudulent conveyance.
Generally, if a court were to find that
o the debtor made the challenged transfer or incurred the challenged
obligation with the actual intent of hindering, delaying or defrauding
present or future creditors, or
o the debtor (1) received less than reasonably equivalent value or fair
consideration for incurring the challenged obligation or making the
challenged transfer and (2) (A) was insolvent or was rendered
insolvent by reason of incurring the challenged obligation or making
the challenged transfer, (B) was engaged or about to engage in a
business or transaction for which its assets constituted unreasonably
small capital, or (C) intended to incur, or believed that it would
incur, debts beyond its ability to pay as such debts matured,
the court could, subject to applicable statutes of limitations, avoid the
challenged obligation or transfer in whole or in part. The court could also
subordinate claims with respect to the challenged obligation or transfer to all
other debts of the debtor. The court's determination as to whether the above is
true at any relevant time will vary depending upon the factual findings and law
applied in any such proceeding.
Generally, a debtor will be considered insolvent if:
o the sum of its debts was greater than the fair saleable value of all
of its assets at a fair valuation; or
o if the present fair saleable value of its assets is less than the
amount that would be required to pay its probable liability on its
existing debts, as they become fixed in amount and nature.
Also, a debtor generally will be considered to have been left with unreasonably
small capital if its remaining capital, including its reasonably projected cash
flow, was reasonably likely to be insufficient for its foreseeable needs, taking
into account its foreseeable business operations and reasonably foreseeable
economic conditions.
With respect to our casino, the transfer of the land from Windsor Woodmont,
LLC presents the most significant potential fraudulent conveyance issue. In
addition, Windsor Woodmont, LLC's creditors could challenge the grant of
security to the holders of the notes. In the event the land transfer is
determined to be fraudulent, we would not be the owner of the land and the
security interest granted to the holders of the notes may be unenforceable. We
cannot assure you that Windsor Woodmont, LLC's creditors will not challenge the
land transfer or what a court may ultimately determine with respect to the land
transfer.
Any fraudulent transfer challenges, even if ultimately unsuccessful, could
lead to a disruption of our business and an alteration in the manner in which
that business is managed. As a result, our ability to meet our obligations under
the notes or in connection with our other debt, or to purchase the warrants
pursuant to the warrant agreement, may be adversely affected.
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Certain parties who provide services or materials in connection with our casino
may have a lien on the project with priority over the liens granted to secure
the notes.
Colorado law provides architects, engineers, contractors, subcontractors,
suppliers and others with a mechanic's lien on the real property being improved
by their services or materials in order to secure their right to be paid.
Following compliance with applicable Colorado law, such parties may foreclose on
their mechanic's liens if they are not paid in full. The priority of all
mechanic's liens arising out of a construction project relates back to the date
on which the construction of the project commenced. Parties who provide services
or materials in connection with our casino, including parties providing services
or materials prior to this offering, after this offering and/or near the end of
the construction period, will have a lien on the project, senior in priority to
the lien granted to secure the notes.
With certain exceptions, the disbursement agreement will require that no
periodic payments be released unless unconditional mechanic's lien releases are
obtained from all architects, engineers, contractors, subcontractors, suppliers
and others being paid with the proceeds of such periodic payments, subject only
to retainage amounts.
Notwithstanding the foregoing, we cannot assure you that enforceable
mechanic's liens will not be senior to the lien granted to secure the notes.
Other than the payment bond from Blattner and certain payment bonds from
subcontractors of PCL, neither we nor the trustee under the indenture governing
the notes has obtained or will obtain payment or performance collateral to
satisfy any such mechanic's liens, nor have we or the trustee obtained title
insurance protection against such mechanic's liens.
Legislation could adversely affect our business.
Additional legalization of gaming in or near any area from which our casino
is expected to draw customers would adversely affect our casino's business.
Also, the legalization of various types of gaming, such as video lottery
terminals, in existing venues such as airports, race tracks or drinking
establishments, would adversely affect our casino's business. See "Gaming and
Liquor Licensing Matters." Colorado law requires statewide voter approval for
any expansion of limited gaming into additional locations and, depending on the
authorization approved by the statewide vote, may also require voter approval
from the locality in question. Several attempts have been made by various
parties in recent years to expand gaming in Colorado.
Currently, Colorado law does not authorize video lottery terminals.
However, Colorado law permits the legislature, with executive approval, to
authorize new types of lottery gaming, such as video lottery terminals, at
certain locations. Video lottery terminals are games of chance, similar to slot
machines, in which the player pushes a button that causes a random set of
numbers or characters to be displayed on a video screen. The player may be
awarded a ticket, which can be exchanged for cash or playing credit. Certain
lottery gaming could compete with slot machine gaming.
Additionally, from time to time, certain federal legislators have proposed
the imposition of a federal tax on gaming revenues. Any such tax could adversely
affect on our financial condition or results of operations.
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Environmental problems are possible and can be costly.
Our casino will be located in a 400-square mile area that has been
designated by the United States Environmental Protection Agency (EPA) as the
Clear Creek/Central City National Priorities List Superfund Site under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
as a result of hazardous substance contamination caused by historical mining
activity in Black Hawk. This is a broad national priorities list site, within
which the EPA has identified several priority areas of contamination from
historical mining activities, including draining mines and mine dumps, for
active investigation and/or remediation. To date, the EPA has not identified the
project site as being within a priority area nor has it identified contamination
on or from the project site to require remediation.
We have been informed that the Superfund Division of the Colorado
Department of Public Health and the Environment (CDPHE), working with the EPA,
has sampled surface water in or near North Clear Creek near where a portion of
the project site called Silver Gulch discharges surface water into North Clear
Creek. We have been informed that based on the results of those samples, the EPA
and the Colorado Superfund Division have expressed preliminary concern that soil
and rock associated with historic mining operations in Silver Gulch may be a
source of contamination to North Clear Creek. Even minor contamination could
form a basis for the EPA or CDPHE to require owners and operators of properties
which have been the source of contamination to investigate and remediate
contamination on or from their property or to reimburse costs incurred by the
government in connection with such remediation. The project site could be among
the properties suspected of being a source of contamination. If investigation or
remediation of the project site were required, the project schedule could be
delayed and costs could increase.
Windsor Woodmont, LLC has conducted a Phase I and Modified Phase II
Environmental Assessment of the site of our casino. The environmental assessment
has identified the remnants of historic mining activities on the site, including
a tunnel, prospect pits, mining waste rock piles, a mine mill, mill tailings and
plugged mine working entrances. The environmental assessment also indicated that
metal analyses of samples of certain soil and rock associated with historic
mining activities were above concentrations allowed by Black Hawk Ordinance No.
93-3 for property proposed for excavation or development and that the soils had
the potential for acid rock drainage.
As a result of the elevated concentrations of metals in the soil and rock
analyses, Windsor Woodmont, LLC has prepared plans regarding the handling,
consolidation and permanent disposal of certain contaminated soils and rock and
has submitted those plans to the City of Black Hawk. Those plans call for any
contaminated soil and rock piles in areas of the property other than Silver
Gulch to be excavated and consolidated in Silver Gulch with contaminated soil
and rock piles historically located there.
The mining related soil and rock to be excavated and consolidated in Silver
Gulch will be covered with a protective soil cap, and water flows onto the Gulch
will be managed to attempt to eliminate or significantly reduce contact of water
with the historic mining material already located in Silver Gulch and the
consolidated material. The soil cap will be covered with the general
construction and excavation debris from the operations necessary to create the
site for our casino.
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Even if all necessary regulatory approvals and permits are obtained for the
project, we cannot assure you that we would not be subject to claims or
requirements for contribution or remediation by private parties, the EPA or the
Colorado Superfund Division relating to previous mining activities conducted at
the project site, to the proposed disposal of excavated soil and rock from the
project site to be consolidated at Silver Gulch, to other contaminated soil and
rock that might be discovered during excavation or construction at the project
site, or to surface water or groundwater contamination potentially connected
with historic mining materials currently located on, or disposed on, the project
site. Moreover, governmental trustees acting pursuant to CERCLA could make
claims for damages to natural resources as a result of past mining activity at
the project site as well as existing conditions or construction activities.
Further, conditions that are imposed in connection with regulatory approvals or
permits could cause construction costs to increase due to costs of handling this
excavated material. In addition, the presence of mine adits or tunnels could
complicate or delay construction due to possible regulatory requirements because
of the possible presence of acidic mine water and attendant drainage problems,
including the mobilization of minerals in rocks contacted by acidic water.
Certain proposed project activities related to road construction or
improvements may also involve wetlands and a flood plain which could trigger
regulatory requirements, affect the project schedule and increase project costs.
A wetland in the right of way of road improvement work for the project site
needs to be drained, requiring a permit under the Clean Water Act be obtained.
We are preparing an appropriate application for a permit, and expect to file the
application at the appropriate time. Channelization of drainage may also fall
under regulatory requirements.
The rate of taxation on gaming profits may increase in the future.
The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds. Effective July 1, 1999, the Colorado Gaming Commission
has set a gaming tax rate of .25% on adjusted gross gaming proceeds up to and
including $2 million, 2% over $2 million up to and including $4 million, 4% over
$4 million up to and including $5 million, 11% over $5 million up to and
including $10 million, 16% over $10 million up to and including $15 million, and
20% over $15 million. The Colorado Gaming Commission also establishes gaming
device fees annually on each slot machine, blackjack table and poker table
operated by a licensee. These fees are set to pay the costs of certain ongoing
regulation by the Colorado Gaming Division. Black Hawk has imposed an annual
device fee of $750 per gaming device and it revises the same from time to time.
The Colorado Gaming Commission may revise the gaming tax or state device fee at
any time, and has been conducting annual reviews to reconsider and reevaluate
the gaming taxes on or about July 1st of each year. We cannot assure you that
the tax rates applicable to our casino will not be increased in the future.
Hyatt Gaming may face difficulties in attracting and retaining qualified
employees for our casino.
The operation of our business requires qualified executives, managers and
skilled employees with gaming industry experience and qualifications to obtain
the requisite licenses. Currently, there is a shortage of skilled labor in the
gaming industry. We believe this shortage will make it increasingly difficult
and expensive for Hyatt Gaming to attract and retain qualified employees.
Increasing competition in Black Hawk and competing markets may lead to higher
costs in order to retain and attract qualified employees. We may incur higher
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labor costs in order for the casino management to attract qualified employees
from existing gaming facilities. While we believe that Hyatt Gaming will be able
to attract and retain qualified employees, Hyatt Gaming may have difficulty
attracting a satisfactory number, and we may incur higher costs than expected as
a result.
The notes are subject to original issue discount tax consequences.
We have allocated a portion of the purchase price per unit issued pursuant
to the unit offering to each of the note and warrant components of the units. As
a result, the notes will be treated as having been issued at a discount for U.S.
federal income tax purposes, and purchasers of the notes will generally be
required to include the accrued portion of this discount in gross income, as
interest, in advance of the receipt of cash payments of this interest.
Prospective investors should consult with their tax advisors about the
application of federal income tax law, as well as any applicable state, local or
foreign tax laws. This prospectus contains no information regarding taxation
other than under certain federal laws of the United States.
In addition, the applicable high yield discount obligation rules may apply.
The potential application of the applicable high yield discount obligation rules
is set forth in detail in "Certain Federal Income Tax Considerations
--Applicable High Yield Obligations." These rules may defer, and eliminate in
part, our ability to deduct for federal income tax purposes the original issue
discount.
If a bankruptcy petition were filed by or against us, you may receive a lesser
amount for your claim than you would be entitled to receive under the indenture
governing the notes, and you may be able to realize taxable gain or loss upon
payment of your claim.
If a bankruptcy were filed by or against us under the U.S. Bankruptcy Code
after the issuance of the notes, the claim by a holder of the notes for the
principal amount of the notes may be limited to an amount equal to the sum of:
(1) the initial offering price for the notes; and
(2) that portion of the original issue discount that does not constitute
"unmatured interest" for purposes of the U.S. Bankruptcy Code.
Any original issue discount that was not amortized as of the date of the
bankruptcy filing would constitute unmatured interest. Accordingly, holders of
the notes under these circumstances may receive a lesser amount than they would
be entitled to receive under the terms of the indenture governing the notes,
even if sufficient funds are available. In addition, to the extent that the U.S.
Bankruptcy Code differs from the Internal Revenue Code in determining the method
of amortization of original issue discount, a holder of notes may realize
taxable gain or loss upon payment of that holder's claim in bankruptcy.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
On March 14, 2000, we sold $100.0 million in principal amount of the old
notes in a private placement through U.S. Bancorp Libra, as placement agent, to
a limited number of "Qualified Institutional Buyers," as defined under the
Securities Act of 1933, and to a limited number of persons outside the United
States. In connection with the sale of the old notes, we entered into a
registration rights agreement, dated as of March 14, 2000, under which we must,
among other things, use our best efforts to file with the Commission a
registration statement under the Securities Act of 1933 covering the exchange
offer and to cause that registration statement to become effective under the
Securities Act of 1933. Upon the effectiveness of that registration statement,
we must also offer each holder of the old notes the opportunity to exchange its
old notes for an equal principal amount of new notes. You are a holder with
respect to the exchange offer if you are a person in whose name any old notes
are registered on our books or if you have obtained a properly completed
assignment of old notes from the registered holder.
We are making the exchange offer to comply with our obligations under the
registration rights agreement. A copy of the registration rights agreement has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
In order to participate in the exchange offer, you must represent to us,
among other things, that:
o the new notes being acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the person receiving
the new notes,
o neither you nor any other person is engaging in or intends to engage
in a distribution of those new notes,
o neither you nor any other person has an arrangement or understanding
with any third person to participate in the distribution of the new
notes, and
o neither you nor any other person is an affiliate of Windsor Woodmont
Black Hawk Resort Corp. An affiliate is any person who "controls or is
controlled by or is under common control with" Windsor Woodmont Black
Hawk Resort Corp.
Resale of the New Notes
Based on a previous interpretation by the Staff of the Commission set forth
in no-action letters issued to third parties, including Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991), Mary Kay Cosmetics, Inc. (available June 5, 1991),
Warnaco, Inc. (available October 11, 1991), and K-III Communications Corp.
(available May 14, 1993), we believe that the new notes issued in the exchange
offer may be offered for resale, resold and otherwise transferred by you, except
if you are an affiliate of Windsor Woodmont Black Hawk Resort Corp., without
compliance with the registration and prospectus delivery provisions of the
Securities Act of 1933, provided that the representations set forth above in "--
Purpose and Effect of the Exchange Offer" apply to you.
If you tender in the exchange offer with the intention of participating in
a distribution of the new notes, you cannot rely on the interpretation by the
Staff of the Commission as set forth in the Morgan Stanley & Co. Incorporated
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no-action letter and other similar letters and you must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
in connection with a secondary resale transaction. In the event that our belief
regarding resale is inaccurate, those who transfer old notes in violation of the
prospectus delivery provisions of the Securities Act of 1933 and without an
exemption from registration under the federal securities laws may incur
liability under these laws. We do not assume or indemnify you against this
liability.
The exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance thereof would not be in compliance with the securities
or blue sky laws of the particular jurisdiction. Each broker-dealer that
receives new notes for its own account in exchange for old notes, where the old
notes were acquired by that broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of the new notes by that broker-dealer.
In order to facilitate the disposition of new notes by broker-dealers
participating in the exchange offer, we have agreed, subject to specific
conditions, to make this prospectus, as it may be amended or supplemented from
time to time, available for delivery by those broker-dealers to satisfy their
prospectus delivery obligations under the Securities Act of 1933.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the Letter of Transmittal, we will accept any and all old notes validly
tendered and not withdrawn prior to 5:00 p.m., _____________time, on the day the
exchange offer expires.
As of the date of this prospectus, $100.0 million in principal amount of
the notes are outstanding. This prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of the old notes on this
date. There will be no fixed record date for determining registered holders of
the old notes entitled to participate in the exchange offer; however, holders of
the old notes must tender their certificates therefor or cause their old notes
to be tendered by book-entry transfer prior to the expiration date of the
exchange offer to participate.
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The form and terms of the new notes will be the same as the form and terms
of the old notes except that the new notes will be registered under the
Securities Act of 1933 and therefore will not bear legends restricting their
transfer. Following consummation of the exchange offer, all rights under the
registration rights agreement accorded to holders of old notes, including the
right to receive liquidated damages, to the extent and in the circumstances
specified in the registration rights agreement, will terminate.
We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement and applicable federal securities laws. Old
notes that are not tendered for exchange under the exchange offer will remain
outstanding and will be entitled to the rights under the related indenture. Any
old notes not tendered for exchange will not retain any rights under the
registration rights agreement and will remain subject to transfer restrictions.
See "-- Consequences of Failure to Exchange."
We will be deemed to have accepted validly tendered old notes when, as and
if we will have given oral or written notice of their acceptance to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purposes of receiving the new notes from us. If any tendered old notes are not
accepted for exchange because of an invalid tender, the occurrence of other
events set forth in this prospectus or otherwise, certificates for any
unaccepted old notes will be returned, or, in the case of old notes tendered by
book-entry transfer, those unaccepted old notes will be credited to an account
maintained with The Depository Trust Company, without expense to the tendering
holder of those old notes as promptly as practicable after the expiration date
of the exchange offer. See "-- Procedures for Tendering Old Notes."
Those who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange pursuant to the
exchange offer. We will pay all charges and expenses, other than applicable
taxes described below, in connection with the exchange offer. See "-- Fees and
Expenses."
Expiration Date; Extensions; Amendments
The expiration date is 5:00 p.m., ____________ time on __________, 2000,
unless we, in our sole discretion, extend the exchange offer, in which case the
expiration date will be the latest date and time to which the exchange offer is
extended. We may, in our sole discretion, extend the expiration date of, or
terminate, the exchange offer.
To extend the exchange offer, we must notify the exchange agent by oral or
written notice prior to 9:00 a.m., ___________ time, on the next business day
after the previously scheduled expiration date and make a public announcement of
the extension.
We reserve the right:
o to delay accepting any old notes, to extend the exchange offer or to
terminate the exchange offer if any of the conditions set forth below
under "-- Conditions" are not satisfied, by giving oral or written
notice of the delay, extension or termination to the exchange agent;
or
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o to amend the terms of the exchange offer in any manner consistent with
the registration rights agreement.
Any delay in acceptances, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice of the delay to
the registered holders of the old notes. If we amend the exchange offer in a
manner that constitutes a material change, we will promptly disclose the
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the old notes, and we will extend the exchange offer for a
period of five to ten business days, depending upon the significance of the
amendment and the manner of disclosure to the registered holders of the old
notes, if the exchange offer would otherwise expire during the five to ten
business day period following that amendment and its disclosure.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, amendment or termination of the exchange
offer, we will have no obligation to publish, advertise or otherwise communicate
that public announcement, other than by making a timely release to an
appropriate news agency.
Upon satisfaction or waiver of all the conditions to the exchange offer, we
will accept, promptly after the expiration date of the exchange offer, all old
notes properly tendered and will issue the new notes promptly after acceptance
of the old notes. See "-- Conditions" below. For purposes of the exchange offer,
we will be deemed to have accepted properly tendered old notes for exchange
when, as and if we will have given oral or written notice of their acceptance to
the exchange agent.
In all cases, issuance of the new notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of certificates for those old notes or a timely
confirmation of book-entry transfer of the old notes into the exchange agent's
account at The Depository Trust Company, a properly completed and duly executed
Letter of Transmittal and all other required documents; provided, however, that
we reserve the absolute right to waive any defects or irregularities in the
tender of old notes or in the satisfaction of conditions of the exchange offer
by holders of the old notes. If any tendered old notes are not accepted for any
reason set forth in the terms and conditions of the exchange offer, if the
holder withdraws such previously tendered old notes or if old notes are
submitted for a greater principal amount of old notes than the holder desires to
exchange, then the unaccepted, withdrawn or portion of non-exchanged old notes,
as appropriate, will be returned as promptly as practicable after the expiration
or termination of the exchange offer, or, in the case of old notes tendered by
book-entry transfer, those unaccepted, withdrawn or portion of non-exchanged old
notes, as appropriate, will be credited to an account maintained with The
Depository Trust Company, without expense to the tendering holder thereof.
Conditions to the Exchange Offer
Without regard to other terms of the exchange offer, we will not be
required to exchange any new notes for any old notes and may terminate the
exchange offer before the acceptance of any old notes for exchange, if:
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o any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange
offer which, in our reasonable judgment, might materially impair our
ability to proceed with the exchange offer;
o the Staff of the Commission proposes, adopts or enacts any law,
statute, rule or regulation or issues any interpretation of any
existing law, statute, rule or regulation, which, in our reasonable
judgment, might materially impair our ability to proceed with the
exchange offer; or
o any governmental approval or approval by holders of the old notes has
not been obtained, which approval we will, in our reasonable judgment,
deem necessary for the consummation of the exchange offer.
If we determine that any of these conditions are not satisfied, we may
o refuse to accept any old notes and return all tendered old notes to
the tendering holders, or, in the case of old notes tendered by
book-entry transfer, credit those old notes to an account maintained
with The Depository Trust Company,
o extend the exchange offer and retain all old notes tendered prior to
the expiration of the exchange offer, subject, however, to the rights
of holders who tendered the old notes to withdraw their tendered old
notes, or
o subject to applicable law, waive unsatisfied conditions with respect
to the exchange offer and accept all properly tendered old notes that
have not been withdrawn. If the waiver constitutes a material change
to the exchange offer, we will promptly disclose the waiver by means
of a prospectus supplement that will be distributed to the registered
holders of the old notes, and we will extend the exchange offer for a
period of five to ten business days, depending upon the significance
of the waiver and the manner of disclosure to the registered holders
of the old notes, if the exchange offer would otherwise expire during
this period following such waiver and its disclosure.
Procedures for Tendering Old Notes
To tender in the exchange offer, you must complete, sign and date an
original or facsimile Letter of Transmittal, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver the Letter of Transmittal to the exchange agent for receipt before the
expiration date of the exchange offer. In addition, either:
o certificates for the old notes must be received by the exchange agent,
along with the Letter of Transmittal, or
o a timely confirmation of transfer by book-entry of those old notes, if
the book-entry procedure is available, into the exchange agent's
account at The Depository Trust Company, as set forth in the procedure
for book-entry transfer described below, which the exchange agent must
receive prior to the expiration date of the exchange offer, or
o you must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive the Letter of
Transmittal and other required documents at the address set forth below under
"-- Exchange Agent" prior to the expiration of the exchange offer.
If you tender your old notes and do not withdraw them prior to the
expiration date of the exchange offer, you will be deemed to have an agreement
with us in accordance with the terms and subject to the conditions set forth in
this prospectus and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR RISK. INSTEAD OF
DELIVERY BY MAIL, IT IS RECOMMENDED THAT YOU USE AN OVERNIGHT OR HAND DELIVERY
SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE OF THE EXCHANGE
OFFER. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO WINDSOR WOODMONT
BLACK HAWK RESORT CORP. YOU MAY REQUEST YOUR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR YOU.
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Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender its old notes should contact the registered holder promptly and
instruct that registered holder to tender the old notes on the beneficial
owner's behalf. If the beneficial owner wishes to tender its old notes on the
owner's own behalf, that owner must, prior to completing and executing the
Letter of Transmittal and delivering its old notes, either make appropriate
arrangements to register ownership of the old notes in that owner's name or
obtain a properly completed assignment from the registered holder. The transfer
of registered ownership of old notes may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an eligible institution unless the old notes
tendered pursuant thereto are tendered:
o by a registered holder who has not completed the box entitled "Special
Payment Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal, or
o for the account of an eligible institution.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, each of the
following is deemed an eligible institution:
o a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
o a commercial bank,
o a trust company having an office or correspondent in the United
States, or
o an eligible guarantor institution as provided by Rule 17Ad-15 of the
Securities Exchange Act of 1934.
If the Letter of Transmittal is signed by a person other than the
registered holder of any old notes, the old notes must be endorsed or
accompanied by a properly completed bond power, signed by the registered holder
as his, her or its name appears on the old notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the Letter of Transmittal or any old notes or bond power, those
persons should so indicate when signing, and evidence satisfactory to us of
their authority to so act must be submitted with the Letter of Transmittal,
unless we waive that requirement.
We will determine all questions as to the validity, form, eligibility,
including time of receipt, acceptance of tendered old notes and withdrawal of
tendered old notes, in our sole discretion. All of these determinations by us
will be final and binding. We reserve the absolute right to reject any and all
old notes not properly tendered or any old notes our acceptance of which would,
in the opinion of our counsel, be unlawful. We also reserve the right to waive
any defects, irregularities or conditions of tender as to particular old notes.
Our interpretation of the terms and conditions of the exchange offer, including
the instructions in the Letter of Transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
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of old notes must be cured within the time we determine. Although we intend to
notify holders of old notes of defects or irregularities with respect to tenders
of old notes, neither we, nor the exchange agent, or any other person will incur
any liability for failure to give this notification. Tenders of old notes will
not be deemed to have been made until defects or irregularities have been cured
or waived. Any old notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the exchange agent to the tendering holders of old
notes, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the expiration date of the exchange offer.
In addition, we reserve the right, in our sole discretion, to purchase or
make offers for any old notes that remain outstanding subsequent to the
expiration date of the exchange offer or, as set forth above under "--Conditions
to the Exchange Offer," to terminate the exchange offer and, to the extent
permitted by applicable law and the terms of our agreements relating to our
outstanding indebtedness, purchase old notes in the open market, in privately
negotiated transactions or otherwise. The terms of any purchases or offers could
differ from the terms of the exchange offer.
If the holder of old notes is a broker-dealer participating in the exchange
offer that will receive new notes for its own account in exchange for old notes
that were acquired as a result of market-making activities or other trading
activities, that broker-dealer will be required to acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
the new notes and otherwise agree to comply with the procedures described above
under "-- Resale of the New Notes;" however, by so acknowledging and delivering
a prospectus, that broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act of 1933.
In all cases, issuance of new notes pursuant to the exchange offer will be
made only after timely receipt by the exchange agent of certificates for the old
notes or a timely confirmation of book-entry transfer of old notes into the
exchange agent's account at The Depository Trust Company, a properly completed
and duly executed Letter of Transmittal and all other required documents. If any
tendered old notes are not accepted for any reason set forth in the terms and
conditions of the exchange offer or if old notes are submitted for a greater
principal amount of outstanding notes than the holder of old notes desires to
exchange, the unaccepted or portion of non-exchanged old notes will be returned
as promptly as practicable after the expiration or termination of the exchange
offer, or, in the case of old notes tendered by book-entry transfer into the
exchange agent's account at The Depository Trust Company pursuant to the
book-entry transfer procedures described below, the unaccepted or portion of
non-exchanged old notes will be credited to an account maintained with The
Depository Trust Company, without expense to the tendering holder of old notes.
Book Entry Transfer
The exchange agent will make a request to establish an account with respect
to the old notes at The Depository Trust Company for the purposes of the
exchange offer within two business days after the date of this prospectus, and
any financial institution that is a participant in The Depository Trust
Company's systems may make book-entry delivery of old notes by causing The
Depository Trust Company to transfer the old notes into the exchange agent's
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account at The Depository Trust Company in accordance with The Depository Trust
Company's procedures for transfer. However, although delivery of old notes may
be effected through book-entry transfer at The Depository Trust Company, the
Letter of Transmittal or a manually signed facsimile thereof, with any required
signature guarantees or an Agent's Message, in the case of a book-entry
transfer, and any other required documents, must, in any case, be transmitted to
and received by the exchange agent at the address set forth below under "--
Exchange Agent" on or prior to the expiration date of the exchange offer, unless
the holder complies with the guaranteed delivery procedures described below.
Guaranteed Delivery Procedures
Holders who wish to tender their old notes and (1) whose old notes are not
immediately available or (2) who cannot deliver their old notes, the Letter of
Transmittal or any other required documents to the exchange agent prior to the
expiration date, may effect a tender if:
o the tender is made through an eligible institution;h
o before the expiration date of the exchange offer, the exchange agent
receives from such eligible institution a properly completed and duly
executed Notice of Guaranteed Delivery, by facsimile transmission,
mail or hand delivery, setting forth the name and address of the
holder, the certificate number(s) of the old notes and the principal
amount of old notes tendered and stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed
Delivery, the Letter of Transmittal, together with the certificate(s)
representing the old notes in proper form for transfer or a
confirmation of book-entry transfer, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by
the eligible institution with the exchange agent; and
o the exchange agent receives the properly completed and executed Letter
of Transmittal, as well as the certificate(s) representing all
tendered old notes in proper form for transfer and other documents
required by the Letter of Transmittal within three New York Stock
Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery.
Upon request to the exchange agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided, tenders of old notes may be withdrawn at any
time prior to 5:00 p.m., ___________ time, on the expiration date of the
exchange offer.
To withdraw a tender of old notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., ______________ time,
on the expiration date of the exchange offer. Any such notice of withdrawal must
o specify the name of the person having deposited the old notes to be
withdrawn,
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o identify the old notes to be withdrawn,
o be signed by the holder in the same manner as the original signature
on the Letter of Transmittal by which the old notes were tendered or
be accompanied by documents of transfer sufficient to have the
exchange agent register the transfer of the old notes in the name of
the person withdrawing the tender, and
o specify the name in which any old notes are to be registered, if
different from that of the person who deposited the old notes to be
withdrawn.
We will determine all questions as to the validity, form and eligibility of
the notices, which determination will be final and binding on all parties. Any
old notes so withdrawn will be deemed not to have been validly tendered for
purposes of the exchange offer, and no new notes will be issued with respect to
those old notes unless the old notes so withdrawn are validly retendered.
Any old notes that have been tendered but that are withdrawn or not
accepted for payment will be returned to the holder of those old notes, or in
the case of old notes tendered by book-entry transfer, will be credited to an
account maintained with The Depository Trust Company, without cost to the holder
as soon as practicable after withdrawal, rejection of tender or termination of
the exchange offer. Properly withdrawn old notes may be retendered by following
one of the procedures described above under "-- Procedures for Tendering Old
Notes" at any time before the expiration date of the exchange offer.
Termination of Certain Rights
All rights given to holders of old notes under the registration rights
agreement will terminate upon the consummation of the exchange offer except with
respect to our duty:
o to keep the registration statement effective until the closing of the
exchange offer and, for a period not to exceed one year after
consummation of the exchange offer, and
o to provide copies of the latest version of this prospectus to any
broker-dealer that requests copies of this prospectus for use in
connection with any resale by that broker-dealer of new notes received
for its own account pursuant to the exchange offer in exchange for old
notes acquired for its own account as a result of market-making or
other trading activities, subject to the conditions described above
under "-- Resale of the New Notes."
Exchange Agent
Bank has been appointed exchange agent for the exchange offer. Questions
and requests for assistance, requests for additional copies of this prospectus
or the Letter of Transmittal and requests for copies of the Notice of Guaranteed
Delivery with respect to the old notes should be addressed to the exchange agent
as follows:
SunTrust Bank
225 East Robinson Street
Suite 250
Orlando, Florida 32801
Attention: Deborah Moreyra
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By Telephone (to confirm receipt of facsimile): (407) 237-4085
By Facsimile (for Eligible Institutions only): (407) 237-5299
Fees and Expenses
We will pay the expenses of soliciting tenders in connection with the
exchange offer. The principal solicitation is being made by mail; however,
additional solicitation may be made by telecopier, telephone or in person by our
officers and regular employees.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. However, we will pay the exchange agent
reasonable and customary fees for its services and will reimburse the exchange
agent for its reasonable out-of-pocket expenses in connection with the exchange
offer.
We estimate that our cash expenses in connection with the exchange offer
will be about $265,000. These expenses include registration fees, fees and
expenses of the exchange agent, accounting and legal fees and printing costs,
among others.
We will pay all transfer taxes, if any, applicable to the exchange of the
old notes for new notes. The tendering holder of old notes, however, will pay
applicable taxes if certificates representing old notes not tendered or accepted
for exchange are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of old notes tendered, or
o if tendered, the certificates representing old notes are registered in
the name of any person other than the person signing the Letter of
Transmittal, or
o if a transfer tax is imposed for any reason other than the exchange of
the old notes in the exchange offer.
If satisfactory evidence of payment of the transfer taxes or exemption from
payment of transfer taxes is not submitted with the Letter of Transmittal, the
amount of the transfer taxes will be billed directly to the tendering holder and
the new notes need not be delivered until the transfer taxes are paid.
Consequences of Failure to Exchange
Participation in the exchange offer is voluntary. Holders of the old notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
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Outstanding notes that are not exchanged for the new notes in the exchange
offer will not retain any rights under the registration rights agreement and
will remain restricted securities for purposes of the federal securities laws.
Accordingly, the old notes may not be offered, sold, pledged or otherwise
transferred except:
o to us or any of our subsidiaries;
o to a "Qualified Institutional Buyer" within the meaning of Rule 144A
under the Securities Act of 1933 purchasing for its own account or for
the account of a qualified institutional buyer in a transaction
meeting the requirements of Rule 144A;
o in an offshore transaction complying with Rule 904 of Regulation S
under the Securities Act of 1933;
o pursuant to an exemption from registration under the Securities Act of
1933 provided by Rule 144 thereunder, if available;
o to "Institutional Accredited Investors" in a transaction exempt from
the registration requirements of the Securities Act of 1933; or
o pursuant to an effective registration statement under the Securities
Act of 1933, and, in each case, in accordance with all other
applicable securities laws.
Accounting Treatment
For accounting purposes, we will recognize no gain or loss as a result of
the exchange offer. The new notes will be recorded at the same carrying value as
the old notes, as reflected in our accounting records on the date of the
exchange. The expenses of the exchange offer will be amortized over the
remaining term of the new notes.
SOURCES AND USES OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the new notes, we will receive in exchange old notes of like
principal amount, the terms of which are identical in all material respects to
the new notes. The old notes surrendered in exchange for new notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the new
notes will not result in any increase in our indebtedness. We have agreed to
bear the expenses of the exchange offer. No underwriters are being used in
connection with the exchange offer.
We used the gross proceeds from the sale of the 100,000 units, each
consisting of $1,000 principal amount of old notes and one warrant to purchase
3.42744 shares of our common stock, together with $7.5 million of proceeds from
the sale of second mortgage notes to Hyatt Gaming, approximately $4.1 million of
proceeds from the issuance of our common stock and $3.0 million of proceeds from
the issuance of our series B preferred stock as follows:
o after payment of approximately $5.2 million in commissions and
offering expenses, approximately $19.5 million has been paid to
refinance land debt, to satisfy liens on the property that has been
44
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contributed to us by Windsor Woodmont, LLC and to pay
previously-incurred project development costs and offering expenses
($1.0 million by direct payment and approximately $18.5 million from a
closing escrow account with our title insurance company into which
such proceeds were placed.) An additional $3.7 million of budgeted
project costs previously incurred remain outstanding and due as of the
date of this prospectus;
o approximately $58.6 million has been deposited into two separate
construction disbursement accounts, which will be used to finance the
cost to develop, construct, equip and open our casino;
o approximately $7.1 million has been deposited into two separate
completion reserve accounts, to be held as a reserve in case there are
insufficient funds in the construction disbursement accounts to
complete our casino; and
o approximately $24.1 million has been deposited into an interest
reserve account and used to purchase government securities
representing funds which, together with the interest earned on the
government securities, will be sufficient to pay the first four
payments of fixed interest on the notes.
We estimate that the proceeds from the completed financings, along with
anticipated financing in the amount of approximately $20.8 million to purchase
furniture, fixtures and equipment for our casino and $3.0 million from the
issuance of special improvement district bonds by the City of Black Hawk, will
be sufficient to complete the development and construction of our casino
project.
SELECTED FINANCIAL DATA
Windsor Woodmont, LLC was organized on July 17, 1997 as a limited liability
company for the purpose of developing, constructing, equipping and operating our
casino. Since that time, Windsor Woodmont, LLC has been in the development
stage, and its activities have been limited to applying for necessary permits,
licenses and approvals and arranging for the design, construction and financing
of our casino. We were formed on January 9, 1998 as a wholly owned subsidiary of
Windsor Woodmont, LLC, which currently owns approximately 10.75% of our common
stock. Windsor Woodmont, LLC has contributed all of its assets and liabilities
to us. We will complete all activities relating to the development,
construction, equipping and operating of our casino.
The selected financial information of Windsor Woodmont, LLC presented below
at December 31, 1999, 1998 and 1997, and for the years ended December 31, 1999
and 1998, the period from inception (July 17, 1997) to December 31, 1997 and the
period from inception (July 17, 1997) to December 31, 1999 has been derived from
the audited consolidated financial statements included elsewhere in this
prospectus. This information should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
financial statements, including the notes thereto, and other financial
information included elsewhere in this prospectus.
45
<PAGE>
<TABLE>
<CAPTION>
Windsor Woodmont, LLC
(dollars in thousands)
At December 31,
---------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance Sheet Data:
Cash $ 147 $ 13 $ 3
Funds held-in-escrow 1,787 1,787 --
Prepaid interest -- -- 507
Debt issuance costs -- 280 700
Deferred offering costs 267 -- --
Land and land improvements 13,214 13,214 6,726
Construction in progress 15,966 11,205 1,596
-------- -------- --------
Total assets $ 31,381 $ 26,499 $ 9,532
-------- -------- --------
Accounts/construction payable $ 15,293 $ 13,614 $ 1,510
and accrued expenses
Accrued interest payable 4,313 887 127
Notes payable 16,755 16,301 8,629
-------- -------- --------
Total liabilities $ 36,361 $ 30,802 $ 10,266
-------- -------- --------
Members' deficit accumulated during the $ (4,980) $ (4,303) $ (734)
-------- -------- --------
development stage
For the For the
period period
from from
July 17, July 17,
1997 (date of 1997 (date of
inception) inception)
through through
Year ended December 31, December 31, December 31,
1999 1998 1997 1999
---- ---- ---- ----
Statement of Operations:
Revenues $ -- $ -- $ -- $ --
Expenses:
General and administrative $ 436 $ 395 $ 127 $ 958
expenses
Interest expense 240 513 96 850
Write-off of previously
capitalized costs -- 2,662 366 3,028
------ ------- ------ -------
Total expenses $ 676 $ 3,570 $ 589 $ 4,836
------ ------- ------ -------
Net loss $ (676) $(3,570) $ (589) $(4,836)
------ ------- ------ -------
</TABLE>
46
<PAGE>
Our selected financial information presented below at December 31, 1999 and
1998, for the year ended December 31, 1999, the period from inception (January
9, 1998) to December 1998 and the period from inception (January 9, 1998) to
December 31, 1999 has been derived from audited financial statements included
elsewhere in this prospectus. Our financial information at March 31, 2000, for
the periods ended March 31, 2000 and March 31, 1999 and for the period from July
17, 1997 (date of inception) to March 31, 2000 is derived from the unaudited
consolidated financial statements which, in the opinion of management, include
all adjustments (consisting of only those which are normal and recurring in
nature) necessary to present fairly the financial position of the Company at
March 31, 2000 and the results of operations and cash flows for periods
presented. This information is qualified in its entirety by, and should be read
in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the financial statements, including the
notes thereto, and other financial information included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Windsor Woodmont Black Hawk Resort Corp.
(dollars in thousands)
At December 31, At March 31,
--------------- ------------
1999 1998 2000
---- ---- ----
Balance Sheet Data:
<S> <C> <C> <C>
Cash, cash equivalents and short-term $ 1 $ 1 $ 88,593
investments
Funds held in escrow $ -- $ -- $ 1,525
Deferred financing costs, net of
accumulated amortization of
$49,820 at March 31, 2000 $ -- $ -- $ 5,929
Total assets $ 1 $ 1 $ 123,620
Accounts/construction payable
and accrued expenses $ -- $ -- $ 2,528
Accrued interest $ -- $ -- $ 582
Notes payable $ -- $ -- $ 105,695
Accrued dividends on preferred
stock $ -- $ -- $ 22
Total liabilities $ 1 $ 1 $ 109,273
Redeemable preferred stock $ -- $ -- $ 4,532
Stockholders' equity $ -- $ -- $ 6,705
47
<PAGE>
For the
For the For the period from
period from period from July 17,
January 9, January 9, 1997
1998 (date 1998 (date (date of
of inception) of inception) Period Period inception)
through through ended ended through
December 31, December 31, December 31, March 31, March 31, March 31,
1999 1998 1999 2000 1999 2000
------------ ------------ ------------ ----------- ----------- -----------
Statement of Operations:
Revenues $ -- $ -- $ -- $ 239 $ -- $ 239
Expenses
General and administrative $ -- $ -- $ -- $ 57 $ 109 $ 958
Start-up costs $ -- $ -- $ -- $ 165 $ -- $ 165
Total expenses $ -- $ -- $ -- $ 700 $ 147 $ 5,536
Net loss $ -- $ -- $ -- $ (461) $ (147) $ (5,297)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of Windsor Woodmont LLC and our financial
statements, including the respective notes thereto, and the other financial
information included elsewhere in this prospectus.
Overview
Windsor Woodmont Black Hawk Resort Corp., a Colorado corporation ("the
Company"), was incorporated on January 9, 1998. Windsor Woodmont, LLC (the
"LLC") was formed as a limited liability company, under the laws of the state of
Colorado, on July 17, 1997. These companies were formed for the purpose of
developing an integrated limited stakes gaming casino, entertainment and parking
facility in Black Hawk, Colorado (the "Project"). As operations of the Project
have not begun, the Company and the LLC are reporting as development stage
enterprises.
On March 14, 2000 (the "Closing Date") the Company completed the private
placement financing transactions discussed below. Prior to the Closing Date, all
development activities were conducted by the LLC and the Company had no
significant assets or liabilities. On the Closing Date the LLC contributed all
of its assets and liabilities to the Company. The Company will complete the
development of the Project, and upon completion, will operate the Project, which
will be managed by Hyatt Gaming Management, Inc.
Prior to the Closing Date, the LLC was in default on substantially all of
its notes payable, and was significantly past due in payment of its
accounts/construction payable and accrued expenses and had a net members'
deficit of approximately $5 million at December 31, 1999. The Company obtained
funds to pay off the liabilities which were assumed from the LLC upon completion
of the Private Placement on March 14, 2000. Upon consummation of the Private
Placement, the following transactions also occurred:
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<PAGE>
o The Company amended its articles of incorporation whereby its
authorized stock consists of 10,000,000 shares of common stock, $0.01
par value per share, and 1,000,000 shares of preferred stock, $0.01
par value per share. The shares of preferred stock may be issued from
time to time in one or more series. The Company designated 29,000
shares of its preferred stock as "Series A" preferred stock and 30,000
shares of its preferred stock as "Series B" preferred stock. The
holders of both the Series A and Series B preferred stock have no
voting rights. The Series A preferred stock is non-convertible,
accrues cumulative, non-compounding dividends at the rate of 11% per
annum and has a liquidation preference of $100 per share. Holders of
the Series A preferred stock may redeem their shares at a price per
share equal to their liquidation preference plus accrued and unpaid
dividends thereon at any time after the later of (1) one year after
the notes issued in the Private Placement are paid in full, whether at
maturity or upon redemption or repurchase and (2) one year after the
second mortgage notes issued to Hyatt Gaming are paid in full, whether
at maturity or upon redemption or repurchase. The Series B preferred
stock is non-convertible, accrues dividends on a cumulative basis,
compounding quarterly at a rate of 7% per annum and has a liquidation
preference of $100 per share. Holders of the Series B preferred stock
may redeem their shares at a price equal to their liquidation
preference plus accrued and unpaid dividends thereon at March 15,
2015. Following completion of these transactions, 1,000,000 shares of
common stock, 29,000 shares of Series A preferred stock and 30,000
shares of Series B preferred stock are outstanding.
o The LLC contributed all of its assets and liabilities to the Company;
in exchange the LLC received 368,964 shares of common stock of the
Company. Such shares represented approximately 37% of the then
outstanding common stock of the Company (prior to any additional
dilution as a result of the warrants issued in the offering and other
transactions closing concurrently with this offering). The majority of
these shares were transferred to its members and to other individuals.
o Notes payable in the amount of approximately $7.40 million was
converted to 383,461 shares of common stock of the Company and accrued
interest in the amount of approximately $1.65 million was forgiven.
o The Company obtained approximately $4.0 million in net proceeds from
the sale of 247,575 shares of its common stock.
o The Company issued (a) $2.9 million of its 11% mandatorily redeemable
Series A preferred stock in satisfaction of certain accrued salaries
and other project development costs ($1.7 million) and accounts
payable ($1.2 million).
o The Company issued $3.0 million of its 7.0% mandatorily redeemable
Series B preferred stock in exchange for cash. The Series B preferred
stock has warrants attached, that will entitle the warrant holders to
purchase, at an exercise price of $0.01 per share, common stock of the
Company that will represent, in the aggregate, 15% of the fully
diluted common stock of the Company. These warrants will have
substantially similar rights as the warrants attached to the Private
Placement.
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<PAGE>
o The Company obtained approximately $7.5 million in proceeds from the
issuance of second mortgage notes and warrants to Hyatt Gaming. The
warrants attached to the Hyatt Gaming second mortgage notes entitle
the warrant holders to purchase, at $0.01 per share, common stock of
the Company that will represent, in the aggregate, 1.98% of the fully
diluted common stock of the Company. These warrants have the same
rights as the warrants issued in the Private Placement.
o U.S. Bancorp Libra, as placement agent, received warrants that entitle
the warrant holders to purchase, at $0.01 per share, common stock of
the Company that will represent, in the aggregate, 4.67% of the fully
diluted common stock then outstanding. These warrants have the same
rights as the warrants attached to the Private Placement.
o The LLC has designated 50,000 of the shares it received for options
granted to various parties who rendered services to the LLC in
satisfaction of $825,000 of accrued compensation.
o The warrants attached to the first mortgage notes and the second
mortgage notes have been valued at $1.64 million and $160,000,
respectively. The warrants attached to the Series B preferred stock
have been valued at $1.37 million. U.S. Bancorp Libra, the placement
agent, received warrants with a value of $383,000. Due to the
put-option feature, the total warrant value of $3.6 million has been
recorded as a liability in our financial statements at March 31, 2000.
Windsor Woodmont, LLC
Results of Operations
For the Year Ended December 31, 1999
Windsor Woodmont, LLC has been in the development stage since its inception
and has not commenced operations. Windsor Woodmont, LLC's primary expenses have
consisted of (1) interest expense on outstanding indebtedness (a significant
portion of which has been capitalized), (2) write-offs of previously capitalized
costs determined to have no further value to our casino, and (3) certain general
and administrative costs. All costs attributable to our casino which, in
management's opinion, having continuing value to our casino are capitalized, and
all other costs have been expensed. The capitalized costs have consisted
primarily of land acquisition costs, design costs, permit applications and
related completion bonds, construction costs, excavation costs, debt issuance
costs, deferred offering costs, salaries, and interest charges during
development and construction.
The following discussion is based on the consolidated operating results of
Windsor Woodmont, LLC.
General and administrative expenses represents salaries and project
development services which have not been capitalized to our casino project. We
have capitalized salaries which, in management's opinion, are directly
attributable to the development of our casino. Accordingly, the increase in
general and administrative expenses from the year ended December 31, 1998 to the
year ended December 31, 1999, and for the period ended December 31, 1997, is a
result of management's determination of the nature of the services being
performed.
50
<PAGE>
Interest charges for the twelve months ended December 31, 1999 totaled
approximately $3.7 million, including $0.3 million in amortization of debt
issuance costs. Of this total, $3.5 million was capitalized and $0.2 million was
expensed. Interest charges for the twelve months ended December 31, 1999
compared to the twelve months ended December 31, 1998 increased as a result of
variable interest rates increasing, and default interest rates applying to
substantially all of the notes during 1999.
Interest charges for the twelve months ended December 31, 1998 totaled
approximately $2.8 million, including $0.9 million in amortization of debt
issuance costs. Of this total, $2.3 million was capitalized and $0.5 million was
expensed. Interest charges for the twelve months ended December 31, 1998
compared to the period from July 17, 1997 (date of inception) to December 31,
1997 increased as a function of the increased period of time in which debt was
outstanding, additional debt being incurred which was utilized to fund land
acquisition and certain project costs, and increased variable interest rates.
Interest charges for the period from July 17, 1997 to December 31, 1997
totaled approximately $0.5 million, including $0.1 million in amortization of
debt issuance costs. Of this total, $0.4 million was capitalized and $0.1
million was expensed.
During 1998, a bond offering was terminated and the design of our casino
project was modified. Accordingly, all costs associated with the terminated bond
offering and costs associated with our casino project which were determined to
have no further value were written off. The write-off of these costs totaled
approximately $2.7 million in 1998. During 1997, approximately $0.4 million in
costs associated with architectural plans created by a prior architectural firm
were determined to have no further value to the casino and consequently were
expensed.
Three Months Ended March 31, 2000
The Company does not have any historical operating results other than
interest expense on the Company's outstanding indebtedness, interest income on
the Company's restricted cash and short-term investments, start up costs, and
the capitalization of certain costs.
General and administrative expenses represent salaries and project
development services which have not been capitalized to our casino project. We
have capitalized salaries which, in management's opinion, are directly
attributable to the development of our casino. Accordingly, the decrease in
general and administrative expenses for the quarter ended March 31, 2000
compared to the quarter ended March 31, 1999 is a result of management's
determination of the nature of the services being performed.
Start up costs are expensed as incurred. The increase in start up costs for
the quarter ended March 31, 2000 compared to the quarter ended March 31, 1999 is
attributable to start up costs being incurred and funded with the successful
completion of the note offering in March 2000.
51
<PAGE>
Interest charges for the three months ended March 31, 2000 totaled
$1,135,671, including $49,820 in amortization of debt issuance costs. Of this
total, $600,659 was capitalized and $535,012 was expensed. Interest charges for
the three months ended March 31, 1999 totaled $861,735, including $70,013 in
amortization of debit issuance costs. Of this total, $823,535 was capitalized
and $38,200 was expensed. Interest charges for the three months ended March 31,
2000 compared to the three months ended March 31, 1999 increased as a result of
the issuance of the $100 million first mortgage notes and the $7.5 million
second mortgage notes.
Windsor Woodmont Black Hawk Resort Corp.
Year Ended December 31, 1999
We are in the development stage and do not have any historical operating
results. To date, all Project costs were incurred by Windsor Woodmont, LLC.
Future operating results will be subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many of which are
beyond our control. While we believe that our casino, if completed and opened,
will be able to attract a sufficient number of patrons and achieve the level of
activity and revenues necessary to permit us to meet our payment obligations,
including those relating to the notes, we cannot assure you that we will achieve
these results.
Liquidity and Capital Resources
We completed debt financing totaling $107,500,000, a cash preferred stock
offering totaling $3,000,000 (series B preferred stock) and a common stock
offering totaling $4,010,250 (net of commissions paid). We also converted
$7,415,000 face amount of notes payable to common stock, and had $1,650,346 in
accrued interest forgiven. In addition, we reduced accounts payable and accrued
expenses a total of $3,725,000 utilizing $2,900,000 in preferred stock (series A
preferred stock) and $825,000 of common stock issued to Windsor Woodmont, LLC.
We estimate that we will need to obtain financing in the amount of
approximately $20.8 million to purchase furniture, fixtures and equipment for
our casino. We also intend to obtain $3.0 million from the issuance of special
improvement district bonds by the City of Black Hawk. We have not entered into
any binding agreements for such financing; however, management believes such
financing will be obtained in due course.
We estimate that the proceeds from the financing completed and those
contemplated financings noted above will be sufficient to complete the
development and construction of our casino project. Following the commencement
of operations of our casino, we expect to fund our operating and capital needs
from operating cash flows.
We cannot assure you that any additional financing, if necessary to meet
liquidity requirements, will be available to us in the future, or that, if
available, any such financing will be on favorable terms. We cannot assure you
that our reasonably foreseeable liquidity needs are or will be accurate or that
new business developments or other unforeseen events will not occur, resulting
in the need to raise additional funds. We expect that the adequacy of our
operating cash flow will depend, among other things, upon patron acceptance of
our casino, the continued development of the Black Hawk market as a gaming
destination, the intensity of the competition, the efficiency of operations,
depth of customer demand, the effectiveness of our marketing and promotional
efforts and the performance by Hyatt Gaming of its management responsibilities.
52
<PAGE>
CHANGE OF ACCOUNTANTS
Effective as of May 31, 2000, we dismissed the accounting firm of
PricewaterhouseCoopers LLP, as our principal independent accountant. The
financial statements of Windsor Woodmont, LLC at December 31, 1999, 1998 and
1997 and for the fiscal years ended December 31, 1999 were prepared assuming
that the company will continue as a going concern. During the last two fiscal
years, there were not any disagreements with PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure. Further, there were no events of the type listed in
paragraphs (A) through (D) of Item 304(a)(v) of Regulation S-K that would
require us to provide further information.
On May 31, 2000, we engaged Arthur Andersen LLP as our new principal
independent accountant to audit our financial statements. Neither we nor anyone
on our behalf has consulted Arthur Andersen LLP regarding the application of
accounting principles to a specific completed or contemplated transaction, or
the type of audit opinion that might be rendered on our financial statements.
The change in accountants was approved by our board of directors and by the
managers of Windsor Woodmont LLC.
BUSINESS
Our Business
We plan to construct, develop, own and operate an integrated casino,
entertainment and parking facility in Black Hawk, Colorado. Black Hawk is
located approximately 40 miles west of Denver and 8.5 miles north of Interstate
70, the main highway which connects Denver to many of Colorado's major ski
resorts. Our casino will be managed by Hyatt Gaming, an independent third party
casino manager and affiliate of Hyatt Corporation. Our casino will be located on
Highway 119, the main thoroughfare to Black Hawk from both Denver and Boulder.
Our casino will be the largest and most spacious gaming facility in Colorado and
will be able to accommodate up to 1,500 slot machines and 24 table games on a
single, ground-level floor. The exterior of our casino will exhibit Rocky
Mountain style architecture, and the interior decor will include distinctive,
high-quality finishes and furnishings, vaulted high ceilings and a unique
upscale ambiance. A variety of non-gaming entertainment amenities, including a
steakhouse restaurant, a high-quality action-station buffet, a food court
featuring various quick service food offerings, a circular lounge with a stage
for live entertainment and large television screens for viewing televised
sporting and other events, will be located throughout our casino. Our casino
will also offer (1) an attached parking garage with approximately 800 self-park
and valet spaces, which will be able to accommodate buses and motor coaches, (2)
the largest porte cochere entrance in Black Hawk, and (3) an indoor/outdoor
plaza area featuring a gourmet coffee shop, an ice cream parlor/candy store and
a gift shop. Our facility will total approximately 425,000 square feet, and will
contain approximately 57,000 square feet of qualified gaming space within our
building footprint in a spacious, single-floor layout which will provide our
patrons with a unique gaming and entertainment experience easily accessed from
our four-corners location at the center of Black Hawk's gaming district.
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We believe that substantial opportunity exists in the Black Hawk market for
a large casino with a variety of upscale gaming amenities designed to attract
more customers from both the Denver and Boulder metropolitan markets and, to a
lesser extent, the Colorado tourist market. We will offer an upscale Las Vegas
style entertainment experience which will include numerous gaming and non-gaming
entertainment offerings, parking convenience and a variety of dining options.
The initial participants in the Black Hawk market were small scale gaming
facilities whose inability to offer convenient, on-site parking or a full range
of traditional casino amenities and entertainment choices limited the rate of
growth of gaming revenue in this market. Subsequently, larger casinos offering
typical gaming amenities, including increased square footage of gaming space,
adjacent covered parking and multiple dining options, have entered the market
and have been gaining market share. The City of Black Hawk experienced 30%
compounded annual growth in gaming revenue from 1992 through 1999. We believe
that the Black Hawk market has significant growth potential and that Black
Hawk's gaming revenue growth rate will continue to exceed the rate of growth in
gaming positions. Despite capacity additions over the years, win per slot per
day has increased every year since 1992. We expect to further expand this market
by providing an integrated gaming, entertainment and parking facility. We
believe that our unique facility, coupled with the significant experience of
Hyatt Gaming and the other Hyatt companies in managing and marketing first class
gaming operations, will enable us to attract both existing gaming customers as
well as patrons from the Denver and Boulder metropolitan areas and the Colorado
tourist market who may be new to the Black Hawk market.
As of December 31, 1999, only three of the 19 casinos in Black Hawk offered
more than 700 gaming positions. The casino most comparable in size to our casino
for which public data is available is the Caribbean-themed Isle of Capri Black
Hawk. The Isle of Capri, located on Main Street with approximately 1,100 gaming
machines on a single casino floor, generated an estimated average win per slot
per day of over $210 during its most recent fiscal quarter which ended on
January 23, 2000, as compared to the 1999 average win per slot per day of
$132.18 for all 19 casinos in Black Hawk.
We believe that our casino will be successful for the following reasons:
o We believe that our casino will have the best location of any casino
in the Black Hawk market. We will be located on Highway 119, the main
thoroughfare from Denver and Boulder. Consequently, our patrons will
not be inconvenienced by the traffic congestion on Main Street that
the other large casinos in Black Hawk are forced to cope with;
o Our casino in Black Hawk will be managed by Hyatt Gaming. This
relationship will afford us both a significant level of operating
expertise on which to draw and a name having national recognition;
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o As one of only three single-floor casinos in the Black Hawk market,
our spacious layout will feature gaming, a variety of dining options,
non-gaming entertainment and other unique amenities, which we believe
will differentiate us from the other large casinos; and
o We will have a convenient, attached self-parking garage and large
porte cochere leading directly into our casino.
We expect our casino to open in the Fall of 2001. We believe that the
excavation and construction budget and timetable for the opening of our casino
can be achieved based on the following:
o The excavation contract provides for excavation to be substantially
completed by August, 2000, subject to certain conditions, with
financial penalties for finishing late and incentives for finishing
early. The excavation contractor has extensive experience with similar
projects and expects to have substantially completed excavation of our
site by the deadline;
o The construction of our casino is being performed pursuant to a
guaranteed maximum price construction contract with PCL, one of the
largest general contractors in the United States. PCL has experience
in constructing facilities in Black Hawk, including The Lodge Casino
and Hotel, which is located directly across from our site. The
construction contract provides for construction to be completed
approximately 14 months after the excavation of our site is
substantially completed, subject to certain conditions, with financial
incentives for finishing early and penalties for finishing late; and
o We have already received many of the local design and regulatory
approvals required to complete construction of our project and we
expect to receive the other required approvals in due course.
Our Competitive Strengths
We believe that our casino will have distinct competitive advantages over
other casinos in the Black Hawk market. These advantages include:
o Favorable Location and Accessibility. We believe our casino will be
one of the most accessible gaming facilities for customers arriving
from Denver. Our casino will be located at the four-corners
intersection of Highway 119 and Richman Street in the center of the
Black Hawk gaming district. Our location will afford our patrons ease
of access via a dedicated right turn lane off of Highway 119. Unlike
our competitors located on Main Street, which is narrow and typically
congested with automobile and pedestrian traffic, we do not expect to
be negatively affected by any continuing construction or
infrastructure improvements following the commencement of our
operations;
o Management, Operation and Marketing by Hyatt Gaming. Following
development and construction of the project, our casino will be
managed and operated by Hyatt Gaming. Currently, there are no other
casinos in Black Hawk having national name recognition. The Hyatt
companies have significant experience in managing and operating
hotels, resorts and casinos. In particular, hotel affiliates of Hyatt
Gaming have over a decade of experience in Colorado marketing to both
the tourist and convention market segments. We believe that our
exclusive relationship with Hyatt Gaming in the Black Hawk market will
enhance our reputation and our ability to attract a broader customer
base;
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<PAGE>
o Unique Design. Due to mountainous terrain, existing roads and zoning
and gaming regulations, most casinos currently existing in Black Hawk
are multi-level, small in size and irregular or elongated in shape.
Due to the shape, size and zoning of our casino site, our casino
design will include a spacious gaming area akin to Las Vegas style
casinos. The entire gaming area will be located on a single,
ground-level floor, unlike the tight, narrow, multi-leveled gaming
areas of all but two of the casinos presently in Black Hawk. Our
casino will be upscale and distinctively designed, unlike most of our
competitors' casinos which are very similar in design and appearance,
and will offer the largest single floor of casino space in Colorado,
allowing us to absorb peak period demand;
o Significant Parking. Most casinos currently in Black Hawk do not
provide adequate parking facilities. We will have an attached
self-parking garage, which leads directly into our casino, that will
provide approximately 800 spaces and that will be able to accommodate
buses and motor coaches. In addition, our parking garage will feature
a covered porte cochere leading directly into our casino. We also own
adjacent property which can be used for additional parking. Currently,
there are approximately 4,000 on-site parking spaces provided by
existing casinos in Black Hawk, with another approximately 1,270
spaces under construction and scheduled to be available by December
31, 2000. Of these approximate 5,270 total on-site parking spaces for
other casinos, approximately 1,350 are within a short walking distance
of our casino;
o Barriers to Entry. Because we will own more than 50% of the remaining
undeveloped casino-zoned land in the area south of Gregory Street,
which is considered to be the prime gaming district in Black Hawk, we
believe that our casino will be one of the last significant casino
construction projects in Black Hawk. The remaining allowable
gaming-zoned land in Black Hawk cannot be increased or altered without
amending the Colorado State Constitution; and
o Experienced Design and Development Team. Steelman Ltd., a Las
Vegas-based, internationally renowned architect and interior design
firm will be creating and designing our casino. Steelman, Ltd. has
designed and opened casino resorts in 15 states and nine countries.
Steelman Ltd.'s clients include Mirage Resorts, Caesar's World,
Sheraton, Sun International, Hard Rock and Harrah's. Our management
and development team also includes experienced developers with
expertise in developing, marketing and managing multi-purpose real
estate facilities.
Our Business Strategy
Our goal is to become a highly profitable casino. We plan to capture
existing market share in Black Hawk and expand the Black Hawk gaming market with
the following business strategy:
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o Offer a Las Vegas Style Gaming Facility. Our casino will be built on
the largest single parcel of real estate ever assembled for casino
development in Black Hawk and will offer an upscale and distinctive
design. We intend to attract patrons by offering a spacious,
single-floor Las Vegas style casino featuring both gaming and
non-gaming entertainment;
o Capitalize on Hyatt Name Recognition and Expertise of the Hyatt
Companies. Currently, there are no other casinos in the Black Hawk
market having national name recognition. We believe the Hyatt
companies' expertise and reputation will enable our casino to stand
out among the existing local operators with respect to quality of
service;
o Focus on Opportunities in the Denver Market. A densely populated and
demographically favorable base of potential customers with
above-average household income levels resides in the Denver
metropolitan area. We believe that the casinos in the Black Hawk
market have not yet begun to achieve their potential penetration of
this customer base. The distinctive design of our casino combined with
its upscale amenities is expected to attract a wider cross section of
Denver metropolitan area residents. Specifically, we believe that our
casino will attract individuals in those markets with the opportunity
to make a short, convenient day trip to a casino, where they can
engage in a variety of activities, including fine dining and gaming,
in an entertaining setting. We intend to take advantage of this
customer base by instituting a marketing plan built on preferred
player recognition programs, data base management/direct mail
marketing, innovative slot and table game merchandising, and
quantifiable drive-in marketing programs. We believe that when
provided with upscale amenities, these potential customers will stay
in our casino longer and spend more than existing Black Hawk customers
currently do. In addition, we expect that the ongoing and planned
developments in the Black Hawk area will increase the popularity and
recognition of the overall market. We plan to capitalize on increased
visitation by residents of Denver and the surrounding suburbs as such
developments are completed; and
o Target and Develop Opportunities in the Colorado Tourist Market.
Approximately 23 million tourists visit Colorado annually. Most of our
competitors have not tapped into this market, and we believe that
targeting and developing this market will give us a competitive
advantage. We believe our competitive strengths will allow us to
successfully penetrate this tourists market.
The Black Hawk Market
Gaming was first introduced to Colorado in October 1991 following a
state-wide referendum in which voters approved limited stakes gaming ($5 per bet
limit) for three historic mining towns -- Black Hawk, Central City and Cripple
Creek. The amendment to the Colorado Constitution authorizing gaming restricted
it to zones within these towns that were designated for commercial use prior to
the adoption of the legislation. Of these three towns, Black Hawk is the closest
to Denver. Black Hawk is located approximately 40 miles west of Denver and about
8.5 miles north of Interstate Highway 70, the main east-west artery from Denver.
The Black Hawk market primarily caters to day-trip customers from the
Denver and Boulder metropolitan areas who primarily play slot machines.
According to statistics published by the Colorado Gaming Division, approximately
95% of gaming revenue in Colorado in 1999 was attributable to slot play.
Approximately 3.4 million people reside within a 100-mile radius of the Black
Hawk market, of which approximately 2.3 million reside in the Denver
metropolitan area. Residents within a 100 mile radius of Black Hawk had an
average household income in excess of $55,000 per year in 1998. Daily traffic
counts passing Black Hawk on Highway 119, as reported by the Colorado Department
of Transportation, averaged over 14,000 vehicles per day in 1998.
Black Hawk's strategic location has contributed to the strong, consistent
growth in the city's gaming revenue. Gaming revenue in Black Hawk has grown from
approximately $56.2 million in 1992 to approximately $354.9 million in 1999.
These figures are adjusted gross proceeds from the Colorado Division of Gaming,
and represent an average 30% compound annual growth rate. The entry of larger,
better-capitalized casinos has also improved and expanded the marketing of Black
Hawk as a day-trip destination.
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<TABLE>
<CAPTION>
The following table sets forth gaming statistics for Black Hawk and Central
City:
--------------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
City of Black Hawk
Gaming revenue $173,703 $195,856 $219,911 $234,631 $272,008 $354,914
(in thousands) 6 1 1 8
% Growth NA 12.75% 12.28% 6.69% 15.93% 30.48%
Number of casinos(1) 19 19 19 19 19 19
Number of slots(1) 4,231 4,877 5,276 5,340 7,181 7,010
Number of tables(1) 103 113 111 106 125 117
Average number of 4,452 4,737 5,066 5,303 5,755 7,009
slots
Slot revenue (in $158,618 $181,022 $205,216 $220,219 $256,766 $337,101
thousands)
Number of days 363 362 365 365 362 364
Win per slot per day(2) $98.24 $105.48 $111.06 $113.77 $123.18 $132.18
Win per table per $375.06 $365.57 $365.83 $369.88 $386.66 $408.22
day(2)
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Central City
Gaming revenue (in $69,702 $94,468 $88,870 $87,391 $93,980 $73,794
thousands)
% Growth NA 35.53% -5.93% -1.66% 7.54% -21.48%
Number of casinos(1) 17 13 12 12 12 11
Number of slots(1) 4,311 3,670 3,259 3,196 3,142 2,545
Number of tables(1) 92 72 60 58 46 40
Win per slot per day(2) $54.63 $60.51 $66.96 $67.97 $81.54 $72.76
Win per table per $245.32 $282.12 $244.14 $219.63 $222.53 $202.20
day(2)
-------------------------------------------- -----------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Black Hawk/Central City
Combined
Gaming revenue (in $243,405 $290,324 $308,781 $322,022 $365,988 $428,708
thousands)
% Growth NA 19.28% 6.36% 4.29% 13.65% 17.14%
Number of casinos(1) 36 32 31 31 31 30
Number of slots(1) 8,542 8,547 8,535 8,536 10,323 9,555
Number of tables(1) 195 185 171 164 171 157
---------------------------------------------------------------------------------------------------------
</TABLE>
Source: Colorado Division of Gaming
-------------
(1) As of December 31 of each period shown.
(2) Win per gaming position per day is based on average number of units during
the period presented.
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For the year ended December 31, 1999, slot machines in the City of Black
Hawk accounted for approximately 95% of Black Hawk's total gaming revenue. In
contrast, for the year ended December 31, 1999, slot machines in the developed
gaming market of New Jersey generated approximately 70% of total gaming revenue
while slot revenue in the emerging market of Indiana accounted for approximately
78% of total gaming revenue.
The number of gaming positions in Black Hawk has grown approximately 118%
from 3,276 positions at the end of 1992 to 7,127 positions at the end of 1999.
The total number of slot machines in Black Hawk has increased 120% from 3,193 at
the end of 1992 to 7,010 at the end of 1999, while the total number of tables in
Black Hawk has increased 41% from 83 at the end of 1992 to 117 at the end of
1999. Win per gaming position per day has continued to grow despite the increase
in the number of gaming positions.
The information contained in this discussion of the Black Hawk market was
derived from publicly available data, except where stated otherwise. While we
believe these sources are reasonably reliable, we cannot assure you that the
information is accurate. See "Market and Industry Data."
Description of Our Casino
General. Our casino will be an upscale, integrated gaming, entertainment
and parking facility, providing patrons with a broad selection of gaming
activities, dining and entertainment as well as convenient on-site, covered
parking. Our casino will be constructed on an approximate 5.7 acre site with the
flexibility to add an additional limited amount of gaming space as allowable
under Colorado gaming regulations. The integrated casino, entertainment and
parking facility will be approximately 425,000 square feet and will contain
approximately 57,000 square feet of qualified gaming space within our building
footprint.
The exterior of our casino will exhibit Rocky Mountain style architecture.
Our casino will be located at the desirable four-corners intersection of Highway
119 and Richman Street in the center of the Black Hawk gaming district. When it
is built, our casino will be the only large casino in Black Hawk located on
Highway 119 with a dedicated right turn lane off of Highway 119.
Our casino floor will be enhanced by distinctive, high quality finishes and
furnishings, high ceilings and upscale ambiance. Our casino will offer gaming
and entertainment on a single, spacious floor, which will allow our patrons to
comfortably enjoy our gaming and entertainment amenities. We expect to offer the
largest selections of gaming positions in the market with up to 1,500
state-of-the-art slot machines and 24 table games. Slot machines will be
available to customers in 5(cent), 25(cent), 50(cent), $1 and $5 denominations
and will be grouped together to generate an atmosphere of excitement consistent
with that typically found in Las Vegas.
Patrons will be able to enter our casino facility from two entrances.
Regardless of which entrance a patron chooses, patrons will be able to
immediately experience the impact of our upscale, integrated casino facility.
The entrance from the parking garage will provide our patrons with a full
overview of our casino facility as the patrons ride the escalator down to our
casino floor. The ceilings of our casino will be 25 to 30 feet high and the
patron will be surrounded on all sides by rows of slot machines and gaming
tables. In addition, the large circular bar and seating area will be directly in
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front of the patron, and to the left will be the tree-lined buffet dining area.
Upon entrance from the pedestrian plaza, patrons will enter a large lounge area.
Patrons will be completely surrounded on all sides by gaming entertainment and
the various dining alternatives in a convenient U-shaped design. The gaming
areas in our casino will feature spacious areas which will lead to intimate
alcoves of slot machines and gaming tables positioned to allow patrons to
experience each of these separate areas. We expect that this design will result
in patrons spending more time in our casino.
Overall, our casino's atmosphere will resemble the Rocky Mountain
surroundings by using rocks and flowing water as part of the interior design.
Parking. Our casino will include an approximately 300,000 square foot
parking garage, with the capacity to park approximately 800 vehicles, which will
be able to accommodate buses and motor coaches. Patrons arriving by car will be
able to self-park directly into the garage. Our casino will also feature Black
Hawk's largest porte cochere leading directly into our casino. Based on existing
and announced casinos in Black Hawk, we believe that the on-site parking
facilities at our casino will be one of the largest in Black Hawk. We believe
that the convenience provided to patrons through direct highway access to our
extensive on-site parking garage will give our casino a competitive advantage
over other casinos in the area which force their patrons to enter and exit via
congested Main Street. The entrances to our casino will be located such that
bus, valet, self-park and pedestrian traffic may enter and exit efficiently.
Entertainment. Our non-gaming amenities will be located throughout the
gaming floor and will include a circular lounge with a stage for live
entertainment and large television screens for viewing televised sporting and
other events.
Food and Other Amenities. In an effort to provide our patrons with other
non-gaming amenities, we will feature a full array of dining options. Our
patrons will be able to choose from a steak house restaurant, a high-quality
action-station buffet and a food court featuring various quick service food
offerings. In addition, our casino will include an indoor/outdoor plaza area
featuring a gourmet coffee shop, an ice cream parlor, a candy store and a gift
shop. We believe our casino will be the only one in Black Hawk with this plaza
feature.
Marketing Strategy
Pursuant to our casino management agreement, Hyatt Gaming will recommend
and implement marketing plans and strategies for our casino. These plans and
strategies will be designed to promote repeat visits and patron loyalty. Our
casino will benefit from the previous experience of Hyatt Gaming and the other
Hyatt companies in operating in various jurisdictions and in highly competitive
environments.
We believe that the primary determinants of success of casinos in the Black
Hawk market have been location and parking. We believe that our casino has an
excellent location and will offer sufficient and convenient parking. In
addition, our casino has an opportunity to expand the Black Hawk market by way
of numbers of patrons and to reach higher-spending patrons by offering a higher
level of quality and service than currently exists in Black Hawk. Additionally,
the size of our casino will allow us to absorb peak period demand.
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Our marketing strategy will be founded upon a commitment to offer our
customers a better and more entertaining gaming experience than is currently
available in the Black Hawk market. Our casino will have a management team
committed to superior service, quality, and innovation. It is our intention not
only to promote repeat business by developing patron loyalty, but also to appeal
to patrons who currently do not find Black Hawk's attractions sufficiently
compelling to warrant the trip. In addition, Colorado hosts approximately 23
million visitors annually. We believe that if we are able to develop casino
patronage from such visitors, it would have a beneficial impact on our casino.
We believe that effective use of database marketing is among the most
efficient means to communicate with active and potential customers. Hyatt Gaming
will utilize player tracking systems to develop effective marketing and
promotional programs by identifying segments of the population most likely to be
attracted to our facility and then tailoring promotions that appeal to this core
group of customers.
Competition
We believe the primary competitive factors in Black Hawk are location,
availability and convenience of parking, number of slot machines and gaming
tables, types and pricing of amenities, name recognition, customer service,
experienced management and overall atmosphere. Competition in Black Hawk is
intense. Certain of our current and future competitors have or may have more
gaming experience than us or Hyatt Gaming and the other Hyatt companies and/or
greater financial resources.
Of the 19 gaming facilities operating in Black Hawk as of December 31,
1999, three have over 700 gaming positions, one of which also offers hotel
accommodations. We believe that these larger gaming facilities will be our main
competitors. These larger gaming facilities all have on-site or nearby parking
and have brand names established in the local market, such as the Isle of Capri,
The Lodge at Black Hawk and Colorado Central Station. In addition, we will
compete with the Riviera Black Hawk Casino, which opened in early February 2000
and features approximately 1,000 slot machines, and the Mardi Gras Casino, which
opened in early March 2000 and features approximately 700 slot machines.
Colorado Central Station, which has been one of the most successful casinos in
Colorado, is located near our casino and has approximately 750 slot machines, 15
gaming tables and approximately 700 valet parking spaces. The Isle of Capri,
which opened in December 1998, is located near our casino and features
approximately 1,100 slot machines, 14 table games and 1,100 parking spaces.
Other competitors in Black Hawk include Gilpin Hotel Casino, Canyon Casino
(formerly operated by Harrah's), Fitzgeralds Casino and Bullwhackers Black Hawk.
Casinos offering hotel accommodations for overnight stay may have a
competitive advantage over our casino. The number of hotel rooms currently in
Black Hawk is approximately 50, with only the Lodge at Black Hawk currently
providing hotel accommodations to patrons. The Isle of Capri Black Hawk is
scheduled to complete a 237 room hotel addition in late summer 2000. Harvey's
Wagon Wheel Casino Hotel, located in Central City, provides 118 hotel rooms.
We may also face increasing competition from casinos in Central City.
Historically, Black Hawk has enjoyed an advantage over Central City because
customers have to drive by and through Black Hawk to reach Central City. On
November 2, 1999, the voters in Central City granted authority to the Business
Improvement District for the sale of approximately $45.2 million in bonds which
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would be allocated towards the planning, design and construction of a nine mile
roadway directly connecting Central City with Interstate 70. This roadway could
result in improved access to both Central City and Black Hawk, and also enable
patrons to reach Central City without driving through Black Hawk if the road
were to be built. Our casino will also compete, to a limited extent, with the
casinos located in Cripple Creek, because both Black Hawk and Cripple Creek
compete for patrons from Denver.
Currently, limited stakes gaming in Colorado is constitutionally authorized
in Central City, Black Hawk, Cripple Creek and two Native American reservations
in southwest Colorado. However, gaming could be approved in other Colorado
communities in the future. The legalization of gaming closer to Denver would
likely have a material adverse impact on our future operating results. Our
casino will also indirectly face competition from other forms of gaming,
including the Colorado state-run lottery, charitable bingo and horse and dog
racing, as well as other forms of entertainment.
Design and Construction Team
We believe we have assembled a highly qualified team to design and
construct our integrated casino, entertainment and parking facility:
PCL Construction Services, Inc. PCL has been retained as the general
contractor for our casino. PCL began operations in 1906. On average, PCL
completes over 750 projects per year. Engineering News Record recently ranked
them as 17th on their list of the top 500 contractors in the U.S. and first in
Canada. PCL has extensive Colorado construction experience and was responsible
for constructing The Lodge Casino and Hotel, the first new-generation casino in
Black Hawk. Other notable projects include the Denver International Airport in
Denver; Staples Arena in Los Angeles; Mall of America in Minneapolis; and the
MGM Grand Hotel and Casino superstructure in Las Vegas.
Paul Steelman Ltd. Steelman Ltd. has been retained as the architect and
interior designer for our casino. Steelman Ltd. is a Las Vegas-based,
internationally renowned, architect and interior design firm that has designed
and opened casino resorts in 15 states and nine countries. Steelman Ltd.'s
clients include Mirage Resorts, Caesar's World, Sheraton, Sun International,
Hard Rock and Harrah's.
D.H. Blattner & Sons, Inc. Blattner has been retained as the excavation
contractor for our casino. Since 1907, Blattner has completed a multitude of
dams, tunnels, highways, foundations, mining operations and other general
construction projects including building, renovation, repair and parking
restoration. Blattner is based in Avon, Minnesota and has over 60 years of
relevant blasting experience, and is a leader in drilling and blasting
techniques, having processed over one billion tons of "drill & shoot"
excavation.
Building Sciences, Inc. Building Sciences has been retained as the
construction manager for our casino. Since 1969, when Building Sciences was
formed, it has provided construction, consulting and management services for
more than 200 office buildings, hotels, condominiums, retail centers, banks,
apartments and hospitals.
Timothy G. Rose. Timothy G. Rose, our Executive Vice President of Casino
Operations and Development, is the project manager for our casino. Mr. Rose has
20 years of hospitality experience, including over 16 years of experience in the
gaming industry. He worked for over ten years in the gaming industry in Atlantic
City, including positions as Senior Vice President at Trump Castle Casino Resort
and Vice President of Marketing at Trump Plaza Casino Hotel. Most recently, Mr.
Rose served as a Director of Coopers & Lybrand LLP's National Hospitality and
Gaming Group in Las Vegas.
Design and Construction Time Line
We believe our casino's excavation and construction has progressed and will
progress according to the following time line:
o We expect excavation to be substantially completed by the end of July,
2000.
o Under the construction contract, construction is expected to take
approximately 14 months from start date to substantial completion.
o Under the construction contract, construction is expected to be
substantially completed in the third quarter of 2001.
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The Hyatt Companies
General. The Hyatt name is associated with excellence in hotels and resorts
in North America, Central America, South America, the Caribbean, Europe, Hawaii
and the Asia Pacific region. The first Hyatt hotel opened in 1957. The Hyatt
companies include Hyatt Corporation and its affiliates, including Hyatt Gaming,
and Hyatt International and its affiliates, which are owned, directly or
indirectly, by trusts for the benefit of one or more of the direct lineal
descendants or siblings, natural or adoptive, of Nicholas J. Pritzker, deceased,
or his or their respective current or future spouses. The Hyatt companies
operate 114 hotels and resorts in 85 cities in the United States, Canada and the
Caribbean, and 79 additional hotels and resorts in 35 countries. The Hyatt
companies collectively accounted for sales of over $4 billion in 1998. In
addition, the Hyatt companies operate seven casinos, including the Grand
Victoria Resort & Casino by Hyatt in Rising Sun, Indiana; the Hyatt Regency Lake
Tahoe Resort & Casino in Incline Village, Nevada; the Hyatt Regency Aruba Resort
& Casino in Palm Beach, Aruba; the Hyatt Regency Casino Thessaloniki in
Thessaloniki, Greece; the Hyatt Cerromar Beach Resort & Casino in Dorado, Puerto
Rico; the Hyatt Regency Lake Las Vegas in Henderson, Nevada; and (under a
special arrangement) Casino Niagara in Ontario, Canada.
Hyatt Gaming. We have entered into a casino management agreement with Hyatt
Gaming pursuant to which Hyatt Gaming will manage our casino once it opens.
Hyatt Gaming was initially established to manage and operate the Grand Victoria
riverboat gaming complex in Rising Sun, Indiana. An affiliate of Hyatt Gaming
controls the ownership of the Rising Sun development, and Hyatt Gaming operates
the Rising Sun property pursuant to a project management agreement entered into
on January 5, 1996. In addition, Hyatt Gaming has entered into a gaming services
agreement with Falls Management Company pursuant to which Hyatt Gaming provides
a comprehensive set of operating services to Falls Management Company, enabling
it to perform its duties and obligations as the operator of Casino Niagara.
Hyatt Gaming has entered into consulting agreements with Hyatt Gaming
Services, L.L.C. relating to the operation of Casino Niagara and the Grand
Victoria in Rising Sun. Hyatt Gaming Services, L.L.C., a wholly owned subsidiary
of Hyatt Gaming, was formed in 1998 to provide consulting services and advice to
developers, owners, operators and managers of gaming casinos. Hyatt Gaming
Services, L.L.C. has consulting agreements, and provides a range of operating
and other services, with respect to all seven of the casinos operated by the
Hyatt companies.
The following table sets forth information as of December 31, 1999
regarding the seven casinos operating under management or consulting agreements
with Hyatt Gaming or other Hyatt companies:
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<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Size of Gaming Operated by
Facility Number of the Hyatt
(in square Operated Companies
Name and Location feet) Slots Tables Since
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Grand Victoria Casino Resort & Casino 40,000 1,396 64 1996
by Hyatt
----------------------------------------------------------------------------------------------------------------
Rising Sun, Indiana
----------------------------------------------------------------------------------------------------------------
2. Hyatt Regency Lake Tahoe Resort 18,900 375 32 1975
& Casino
----------------------------------------------------------------------------------------------------------------
Incline Village, Nevada
----------------------------------------------------------------------------------------------------------------
3. Hyatt Regency Aruba Resort & Casino 11,000 302 23 1990
----------------------------------------------------------------------------------------------------------------
Palm Beach, Aruba
----------------------------------------------------------------------------------------------------------------
4. Hyatt Regency Casino Thessaloniki 43,000 911 77 1996
----------------------------------------------------------------------------------------------------------------
Thessaloniki, Greece
----------------------------------------------------------------------------------------------------------------
5. Hyatt Cerromar Beach Resort & Casino 6,000 249 21 1985
----------------------------------------------------------------------------------------------------------------
Dorado, Puerto Rico
----------------------------------------------------------------------------------------------------------------
6. Casino Niagara(1) 100,000 2,781 137 1998
----------------------------------------------------------------------------------------------------------------
Ontario, Canada
----------------------------------------------------------------------------------------------------------------
7. Hyatt Regency, Lake Las Vegas 10,000 191 11 1999
----------------------------------------------------------------------------------------------------------------
Henderson, Nevada
----------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1) A Hyatt company controls a 35% ownership interest in Falls Management
Company, the operator of Casino Niagara. A senior Hyatt officer also serves
as Chief Executive Officer of Falls Management Company.
Properties
Black Hawk, Colorado. We own approximately 106 acres of undeveloped land
located at the intersection of Richman Street and Highway 119 in Black Hawk,
Colorado. This tract of land is comprised of an approximate 5.7 acre parcel on
which our casino will be constructed with an appraised value of $19.0 million
(up to approximately 78,000 gross gaming-zoned square feet, of which
approximately 57,000 square feet is within our building foot print and may
currently be used for gaming), and an additional 100.5 acre parcel with an
appraised value of $14.5 million (up to 41,000 gross gaming-zoned square feet)
on which we may develop in the future.
Our temporary office in Black Hawk is situated in a leased trailer which is
parked on our Black Hawk property.
Dallas, Texas. We lease approximately 838 square feet on the fifth floor of
Northcreek Place II, 12160 North Abrams Road, Dallas, Texas. This facility,
which houses our executive offices, is leased from an unaffiliated third party
at a base monthly rental of $1,326.83. The lease terminates on May 15, 2002.
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Employees
During the construction of our casino, we expect to have six full-time,
paid employees. All other personnel retained to provide services at our casino
will be Hyatt Gaming employees trained by Hyatt Gaming. We believe Hyatt Gaming
will be able to attract and retain a sufficient number of qualified individuals
to operate our casino. However, we cannot assure you that Hyatt Gaming will be
able to do so. Furthermore, we do not know whether or to what extent such
employees will be covered by collective bargaining agreements. See "Risk Factors
-- Hyatt Gaming may face difficulties in attracting and retaining qualified
employees for our casino."
Legal Proceedings
There is no litigation pending that could have, individually or in the
aggregate, a material adverse effect on our business, financial condition,
results of operations or cash flows.
GAMING AND LIQUOR LICENSING MATTERS
Operating Restrictions. The amendment to the Colorado State Constitution
permits limited gaming in the cities of Central City, Black Hawk and Cripple
Creek, Colorado. The amendment defines "limited gaming" as the use of slot
machines and the card games of blackjack and poker, each with a maximum single
bet of $5.00. The amendment restricts limited gaming to the commercial districts
of Black Hawk, Central City and Cripple Creek, as such commercial districts were
defined in city ordinances on specific dates. Limited gaming is governed by the
amendment and the regulations of the Colorado Gaming Commission and Colorado
Revised Statutes sec. 12-47.1-101 et seq., hereinafter referred to as the
Colorado Limited Gaming Act. In the case of the City of Black Hawk, limited
gaming is restricted by the amendment to the commercial district of Black Hawk
as it existed on May 4, 1978. The amendment also restricts gaming to structures
that conform to the architectural styles and designs that were common to the
areas prior to World War I and that conform to applicable city ordinances. Under
the amendment, no more than 35% of the square footage of any building and no
more than 50% of any one floor of such building may be used for gaming. Gaming
operations may be conducted 365 days a year but are prohibited between the hours
of 2:00 a.m. and 8:00 a.m. Pursuant to the Colorado Limited Gaming Act, no
limits are imposed on total patron losses and casinos are not allowed to extend
credit to the patrons. Persons under the age of 21 are prohibited from
participating in gaming or lingering in gaming areas.
Colorado law requires licensees to maintain detailed books and records that
accurately account for all monies and business transactions. Books and records
must be furnished upon demand to the Colorado Gaming Commission or the Colorado
Gaming Division. Detailed and extensive playing procedures, standards,
requirements and rules of play are established for poker, blackjack and slot
machines. Licensees must adopt comprehensive internal control procedures
governing their gaming operations. Such procedures must be approved in advance
by the Colorado Gaming Division and, in certain cases, the Colorado Gaming
Commission, and include the areas of accounting, surveillance, security, cashier
operations, key control and fill and drop procedures, among others.
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No gaming may be conducted in Colorado unless all appropriate licenses are
approved by and obtained from the Colorado Gaming Commission. Violations of
Colorado gaming laws or regulations may be criminal offenses and the person or
entity violating such laws and regulations may be subject to criminal penalties
and/or administrative fines, and may have its gaming license suspended or
revoked.
License Information Requirements. The Colorado Gaming Commission may issue
the following five types of licenses: (1) slot machine manufacturer or
distributor; (2) operator; (3) retail gaming; (4) support; and (5) key employee.
The first three licenses require annual renewal by the Colorado Gaming
Commission. Support licenses and key employee licenses are issued for two-year
periods and are renewable by the Director of the Colorado Gaming Division. The
Colorado Gaming Commission has broad discretion to condition, suspend, revoke,
limit or restrict a license at any time and also has the authority to impose
fines.
A slot machine manufacturer or distributor license is required for all
persons who manufacture, import or distribute slot machines in Colorado, or who
otherwise act as slot machine manufacturers or distributors. No manufacturer or
distributor may (1) have an interest in an operator, (2) allow its officers or
others with a substantial interest in it to have an interest in an operator, (3)
employ any person who is employed by an operator, or (4) allow an operator or
any person with a substantial interest in the operator to have an interest in
it. An operator license is required for all persons who permit slot machines on
their premises or who engage in the business of placing and operating slot
machines on the premises of a retailer. A retail gaming license is required for
all persons permitting or conducting limited gaming on their premises and such
license may be granted only to a retailer. A licensed retailer such as the
casino only needs to obtain a retail gaming license. No person may have an
ownership interest in more than three retail gaming licenses within the State of
Colorado. All natural persons employed in the field of limited gaming must hold
either a support or key employee license. Every retail gaming licensee must have
a key employee licensee in charge of all limited gaming activities available at
all times when gaming is being conducted. The Colorado Gaming Commission may
determine that any employee of a licensee is a key employee and, therefore,
require that such person apply for licensing as a key employee.
While information necessary to obtain a support license is minimal, an
applicant for any other type of Colorado license must provide the following
information on a form provided by the State: (1) personal background
information; (2) financial information; (3) participation in certain legal or
illegal activities in Colorado or other jurisdictions, including foreign
countries; (4) criminal record information; (5) information concerning all
pecuniary and equity interests in the applicant; and (6) other information as
requested or required. Prior to licensure, applicants must satisfy the Colorado
Gaming Commission that they are suitable for licensing and are of good moral
character. The Colorado legislature has defined unsuitability as the inability
to be licensed by the Colorado Gaming Commission because of prior acts,
associations or financial conditions and, in relation to acts or practices,
those which violate or would violate the statutes or rules or are or would be
contrary to the declared legislative purposes of the Colorado Limited Gaming
Act. Without limiting the foregoing, a person cannot be licensed if such person
has served a sentence upon conviction of a felony or fraud-related misdemeanor
within ten years of application for licensure, has been convicted of a
gambling-related offense, is currently under a prosecution, is associated with
an organized crime cartel or has refused to cooperate in certain governmental
investigations. Applicants have the burden of proving their suitability to the
Colorado Gaming Commission and must submit to and pay the full cost of any
background investigations as may be ordered by the Colorado Gaming Commission.
There is no limit on the cost of such background investigations and no guarantee
that any applicant will receive licensing from the Colorado Gaming Commission.
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The current practice of the Colorado Gaming Commission is to require the
following persons and entities to complete background investigation forms, and
to provide comprehensive information and to submit to a full background
investigation: (1) persons or entities owning (either directly or on a
pass-through basis) 5% or more of a privately traded entity licensee, (2)
persons or entities owning (either directly or on a pass-through basis) 10% or
more of a publicly owned entity licensee, and (3) directors and officers of the
licensee. The Colorado Gaming Commission has recently approved a regulation
requiring the completion of a "Limited Ownership Application Form" by any person
or company holding less than a 5% ownership interest in a privately held gaming
business. This form requires basic data, including limited financial history and
tax return disclosure, fingerprints, limited criminal history disclosure, basic
personal data and an affirmance as to the truthfulness of the statements
contained therein. The Colorado Gaming Commission and the Colorado Gaming
Division retain the authority and discretion to require any person or entity
with an interest in a licensee (directly or on a pass-through basis) to submit
such information and undergo full investigation. In addition, all persons
lending monies, goods or real or personal property to a licensee or applicant,
or having any interest in a licensee or applicant, or entering into any
agreement with a licensee or applicant, must provide any information if so
requested by the Colorado Gaming Commission and the Gaming Commission Division,
including submission to a full background investigation if ordered by the
Colorado Gaming Commission and the Colorado Gaming Division.
All applicants for Colorado gaming licenses must complete comprehensive
applications and forms, pay required fees and provide all information required
by the Colorado Gaming Commission and the Colorado Gaming Division. The Colorado
Gaming Division conducts a thorough background investigation of each applicant
or any person or entities associated with the applicant. The Colorado Gaming
Division may request that investigators from the Colorado Bureau of
Investigation also interview and assist in the background investigation. The
investigation may cover the background, personal history, financial
associations, past associations with casino owners and operators, character,
record and reputation of the applicant and its associated persons. The applicant
pays the full cost of the background investigation. There is no limit on the
cost or duration of the background investigation and the length or delay in the
approval process may have a material, adverse impact on the ability of the
casino to timely obtain its gaming license. Applicants who do not provide all
requested information during a background investigation may be denied a gaming
license. In addition, all persons loaning monies, goods or real or personal
property to a licensee or applicant, or entering into any agreement with a
licensee or applicant, must provide any information requested by the Colorado
Gaming Division or the Colorado Gaming Commission; and in the discretion of the
Colorado Gaming Division or the Colorado Gaming Commission, these persons must
supply all information relevant to a determination of any such person's
suitability for licensure and must submit to a full background investigation if
ordered by the Colorado Gaming Commission. Failure to promptly provide all
information requested or to submit to a suitability or background investigation
may result in (1) the denial of a gaming license application, (2) the suspension
or revocation of an existing license, (3) termination of any lease, note
arrangement or agreement between the applicant or licensee and the person
requested to provide the information, and (4) other sanctions such as the
imposition of fines. Applicants and licensees may be required by the Colorado
Gaming Commission to pay the costs of background, suitability or other
investigations associated with the applicant or licensee. Investigations for
suitability, background or any other reason may delay the license application or
the performance under any agreement with a licensee. All agreements, contracts,
leases and arrangements in violation of the Colorado Limited Gaming Act or the
rules are void and unenforceable. If the Colorado Gaming Commission determines
that a person or entity is unsuitable to own interests in the gaming licensee,
then the applicant and/or licensee could be sanctioned, which may include the
loss by the casino of approvals or licenses.
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In addition, the Colorado regulations prohibit a licensee or affiliated
company thereof from paying dividends, interest or other remuneration to any
unsuitable person, or recognizing the exercise of any voting rights by any
unsuitable person. Further, the casino may repurchase the shares of anyone found
unsuitable at the lesser of cost or fair market value with indebtedness
subordinated to the notes and the second mortgage notes held by Hyatt Gaming.
In addition to its authority to deny an application for a license based on
suitability, the Colorado Gaming Commission has jurisdiction to disapprove a
change in corporate position of the licensee and may have such authority with
respect to any entity or person which is required to be found suitable by the
Colorado Gaming Commission. The Colorado Gaming Commission has the power to
require the licensee to suspend or dismiss managers, officers, directors and
other key employees, or sever relationships with other persons who refuse to
file appropriate applications or to whom the authorities find unsuitable to act
in such capacity; and may have such power with respect to any entity which is
required to be found suitable. Specifically, it should be noted that there are
limited exceptions applicable to licensees that are publicly traded entities
and, generally speaking, no person, including persons who may acquire an
interest in a licensee pursuant to a foreclosure, may sell, lease, purchase,
convey or acquire any interest in a retail gaming or operator license or
business without the prior approval of the Colorado Gaming Commission after
investigation by the Colorado Gaming Division.
Persons found unsuitable by the Colorado Gaming Commission may be required
to terminate immediately any interest in, association or agreement with, or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant also may jeopardize the licensee's license or the applicant's
application. The grant of a license may be conditioned upon the termination of
any relationship with unsuitable persons.
Licensees have a continuing duty to report to the Colorado Gaming
Commission and the Colorado Gaming Division information concerning persons with
a financial or equity interest in the licensee, or who have the ability to
control or exercise a significant influence over the licensee, or who loan money
to the licensee. Therefore, the requisite information regarding the holders of
the notes and warrants will have to be periodically reported to the Colorado
Gaming Commission and the Colorado Gaming Division.
Under Colorado law, it is a criminal violation for any person to have a
legal, beneficial, voting or equitable interest, or right to receive profits, in
more than three retail gaming licenses in Colorado. The Colorado Gaming
Commission has ruled that a person does not have an interest in a licensee for
purposes of this multiple-license prohibition if: (1) such person has less than
a 5% interest in an institutional investor which has an interest in a publicly
traded licensee or publicly traded company affiliated with a licensee (such as
our company); (2) a person has a 5% or more financial interest in an
institutional investor, but the institutional investor has less than a 5%
interest in a publicly traded licensee or publicly traded company affiliated
with a licensee; (3) an institutional investor has less than a 5% financial
interest in a publicly traded licensee or publicly traded company affiliated
with a licensee; (4) an institutional investor possesses securities in a
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fiduciary capacity for another person and does not exercise voting control over
5% or more of the outstanding voting securities of a publicly traded licensee or
of a publicly traded company affiliated with a licensee; (5) a registered broker
or dealer retains possession of securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee for its customers in street
name or otherwise, and exercises voting rights for less than 5% of the publicly
traded licensee's voting securities or of a publicly traded company affiliated
with licensee; (6) a registered broker or dealer acts as a market maker for the
stock of a publicly traded licensee or of a publicly traded company affiliated
with a licensee and possesses a voting interest in less than 5% of the stock of
the publicly traded licensee or of a publicly traded company affiliated with a
licensee; (7) an underwriter is holding securities of a publicly traded licensee
or of a publicly traded company affiliated with a licensee as part of an
underwriting for no more than 90 days if it exercises voting rights with respect
to less than 5% of the outstanding securities of a publicly traded licensee or a
publicly traded company affiliated with a licensee; (8) a stock clearinghouse
holds voting securities for third parties, if it exercises voting rights with
respect to less than 5% of the outstanding securities of a publicly traded
licensee or of a publicly traded company affiliated with a licensee; or (9) a
person owns less than 5% of the voting securities of the publicly traded
licensee or publicly traded company affiliated with a licensee. Hence, our
business opportunities and those of our shareholders in Colorado are limited to
such interests that comply with the Colorado statute and the Colorado Gaming
Commission's rules.
Conveyance. With limited exceptions applicable to licensees that are
publicly traded entities, no person may sell, lease, purchase, convey or acquire
any interest in a retail gaming or operator license or business without the
prior approval of the Colorado Gaming Commission. Also, no person may own gaming
equipment without being licensed. Such prohibition could impair the ability of
the holders of the notes to liquidate our assets upon any foreclosure of the
liens securing the notes.
There cannot be a change in our control without the Colorado Gaming
Commission's prior approval. Also, there can be no change in our capital stock
without the Colorado Gaming Commission's prior approval.
All agreements, contracts, leases or arrangements in violation of
applicable Colorado law or regulations are void and unenforceable. The Colorado
Gaming Commission or the Director of the Colorado Gaming Division may require
changes in gaming contracts (which are any agreements with a licensee, such as
the indenture governing the notes) or termination of a gaming contract.
Rule 4.5. In addition to the other requirements of the gaming laws, the
Colorado Gaming Commission has enacted a special rule, Rule 4.5, which imposes
additional requirements on publicly traded corporations holding gaming licenses
in Colorado and on gaming licensees in Colorado owned directly or indirectly by
publicly traded corporations. The term "publicly traded corporation" is a
specially defined term and may include corporations, trusts, partnerships and
other business organizations, and may even include entities exempted from the
registration requirements of the securities laws under certain circumstances.
Should the company be deemed "publicly traded" for purposes of Rule 4.5, the
following provisions would apply.
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Under Rule 4.5, licensees to whom Rule 4.5 applies must include in their
articles of organization or similar charter documents certain specified
provisions that: (1) restrict the rights of the licensee to issue voting
interests or securities except in accordance with the Colorado gaming laws; (2)
limit the rights of persons to transfer voting interests or securities of a
licensee except in accordance with the Colorado gaming laws; and (3) provide
that holders of voting interests or securities of a licensee found unsuitable by
the Colorado Gaming Commission may be required to sell their interests or
securities back to the issuer at the lesser of, in general terms, the holder's
investment or the market price as of the date of the finding of unsuitability.
Alternatively, and with authorization by the Colorado Gaming Commission, the
holder may, in limited circumstances, transfer the voting interests or
securities to a suitable person (as determined by the Colorado Gaming
Commission). Until the voting interests or securities are held by suitable
persons, (1) the issuer may not pay dividends or interest on them, (2) the
interests or securities may not be voted or entitled to any vote and they may
not be included in the voting of securities of the issuer, and (3) the issuer
may not pay any remuneration in any form to the holder of the securities or
interests.
Pursuant to Rule 4.5, persons who acquire direct or indirect beneficial
ownership of (1) 5% or more of any class of voting securities of a publicly
traded corporation involved in gaming in Colorado; or (2) 5% or more of the
beneficial interest in a gaming licensee directly or indirectly through any
class of voting securities of any holding company or intermediary company of a
licensee (all such persons hereinafter referred to as "qualifying persons") must
notify the Colorado gaming authorities within 10 days of such acquisition, are
required to submit all requested information and are subject to a finding of
suitability. Licensees also must notify any qualifying persons of these
requirements. A qualifying person whose interests equal 10% or more must apply
to the Colorado Gaming Commission for a finding of suitability within 45 days
after acquiring such securities. Licensees must also notify any qualifying
persons of these requirements. Whether or not notified, qualifying persons are
responsible for complying with these requirements.
A qualifying person who is an institutional investor under Rule 4.5 and
whose interests equal 15% or more must apply to the Colorado Gaming Commission
for a finding of suitability within 45 days after acquiring such interests. A
qualifying person who is an institutional investor and whose interests equal 10%
or more, but less than 15%, may not be required to apply for suitability,
provided such person fulfills certain reporting requirements.
Pursuant to Rule 4.5, persons found unsuitable by the Colorado Gaming
Commission must be removed from any position as an officer, director,
shareholder or employee of a licensee, or from a holding or intermediary company
thereof. Such unsuitable persons also are prohibited from any beneficial
ownership of the voting securities of any such entities. Licensees, or
affiliated entities of licensees, are subject to sanctions for paying dividends
to persons found unsuitable by the Colorado Gaming Commission, or for
recognizing voting rights of, or paying a salary or any remuneration for
services to, unsuitable persons. Licensees or their affiliated entities also may
be sanctioned for failing to pursue efforts to require unsuitable persons to
relinquish their interests. The Colorado Gaming Commission may determine that
anyone with a material relationship to a licensee, or affiliated company, must
apply for a finding of suitability.
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Taxes. The amendment to the Colorado State Constitution further provides
that, in addition to any other applicable license fees, up to a maximum of 40%
of the adjusted gross proceeds of gaming operations may be payable by a licensee
for the privilege of conducting limited gaming in the State of Colorado.
Adjusted gross proceeds of gaming operations is generally defined as the total
amounts wagered, less all payments to players. With respect to games of poker
and other table games, adjusted gross proceeds of gaming operations means those
sums wagered in a hand retained by the licensee as compensation, which must be
consistent with the minimum and maximum amounts established by the Colorado
Gaming Commission. Currently the gaming tax on adjusted gross proceeds of gaming
operations is .25% on adjusted gross gaming proceeds of up to and including $2
million, 2% over $2 million up to and including $4 million, 4% over $4 million
up to and including $5 million, 11% over $5 million up to and including $10
million, 16% over $10 million up to and including $15 million, and 20% over $15
million. The gaming tax is paid monthly with licensees required to file returns
by the 15th of the following month. Gaming taxes are established as of July 1st
for the following 12 months.
Annual Device Fees. The Colorado Gaming Commission also establishes gaming
device fees annually on each slot machine, blackjack table and poker table
operated by a licensee. These fees are set to pay the costs of certain on-going
regulation by the Colorado Gaming Division. The municipalities of Central City,
Black Hawk and Cripple Creek also assess and collect their own device fees. The
current annual device fee in Black Hawk is $750 per device. There is no
statutory limit on state or city device fees, which may be increased at the
discretion of the State or the applicable city. The state device fee is not
prorated; a device used at any time during the year is assessed the full state
fee. Local device fees may be prorated according to device usage; Black Hawk
currently prorates device fees such that any device used at any time during a
calendar quarter is subject to the device fee for such calendar quarter. In
addition, a business improvement fee of approximately $90 per device and a
transportation impact fee of approximately $155 per device also may apply,
depending upon the location of the licensed premises. Our casino is currently
not subject to the business improvement fee.
Alcohol. The sale of alcoholic beverages in gaming establishments is
subject to strict licensing, control and regulation by state and local
authorities. Alcoholic beverage licenses are revocable and non-transferable.
State and local licensing authorities have full power to deny, limit, condition,
suspend or revoke any such licenses. Persons or entities which directly or
indirectly own 10% or more of a licensee will be required to complete
applications and submit certain personal and financial information and be
subject to investigation. Violation of the state alcoholic beverage laws may
constitute a criminal offense and violators may be subject to criminal
prosecution, incarceration and fines.
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There are various classes of retail liquor licenses under the Colorado
State Liquor Code. A retail gaming tavern license or restaurant liquor license
may be issued to persons who are licensed as a limited gaming establishment
pursuant to Colorado law. A retail gaming tavern licensee may sell malt, vinous
or spirituous liquors only by individual drinks for consumption on the premises,
and must also make available sandwiches or light snacks or contract with
concessionaires to provide food services within the same building as the
licensed premises. A restaurant liquor license requires the service of meals and
that at least 25% of the total of food and beverage sales come from the sale of
food. In no event may any person hold, or have an interest in, more than three
retail gaming tavern licenses. Also, a person may not have an interest in more
than one class of liquor license. An application for an alcoholic beverage
license in Colorado requires notice, posting and a public hearing before and
approval by the local liquor licensing authority. In Black Hawk, the licensing
authority is the Black Hawk Board of Aldermen. The Colorado Department of
Revenue, through its Liquor Enforcement Division, also must approve the
application.
Recent Developments. In 1994, Colorado voters refused by a margin of 92% to
8% to permit limited gaming in Manitou Springs (located near Colorado Springs
and Cripple Creek) and the placement of slot machines in airports. On November
5, 1996, Colorado voters defeated by a margin of 69% to 31% a proposal to allow
gaming in the community of Trinidad, located on the Colorado-New Mexico border.
There can be no assurance, however, that additional gaming will not be
authorized.
In 1997 the state legislature passed, but the Governor vetoed, a bill that
would have permitted video lottery terminals in dog and horse race tracks as
well as casinos, under certain terms and conditions. Video lottery terminals are
games of chance, similar to slot machines, in which the player pushes a button
that causes a random set of numbers or characters to be displayed on a video
screen. Depending on the display, the player may be awarded a ticket, which can
be exchanged for cash or playing credit. There can be no assurance that similar
legislation permitting video lottery terminals in dog and horse race tracks or
other venues will not be considered in the future. For example, in January 1998,
three gaming-related bills were proposed in the State of Colorado. The first of
these bills would require that any proposed casino structure with gross square
footage exceeding 60,000 square feet obtain the approval of the State Historical
Society prior to construction. This bill was defeated in the Senate. Such
legislation, or future legislation, if passed, could significantly delay or
prevent the completion of our casino or require substantial size or design
changes for our casino in order to conform to any conditions to approval by the
State Historical Society or other similar regulatory agency. The second bill,
which was the subject of an initial hearing in the Senate and is similar to the
1997 proposed legislation vetoed by the Governor, would provide for the
installation of up to 500 video lottery terminals in each of the State's five
horse and dog racing tracks. The Governor, to date, has consistently resisted an
expansion of gaming through the device of video lottery terminals. The third
bill, introduced to prevent the installation of video lottery terminals by
specifically defining video lottery terminals as slot machines, was defeated in
committee by the House of Representatives. Legislation permitting or requiring
the installation of video lottery terminals at horse and dog racing tracks or
elsewhere, or future initiatives, if passed, could significantly increase the
competition for gaming customers, thereby adversely affecting business in the
Black Hawk market, including the business of our casino. Additionally, there can
be no assurance that there will be no legislation or future promulgation of
regulations by the Colorado Gaming Commission that would impose additional
restrictions, raise taxes, subject to constitutional limitations, impose
prohibitions on, or assess increased device fees or impose additional fees with
respect to, our business. A new governor was elected in 1998 and has taken
office. The new governor may approach limited gaming expansion differently than
his predecessor. If he does so, it may have a material adverse effect on the
Black Hawk market.
Federal legislation was recently enacted that established a National
Gambling Impact and Policy Commission to study the economic impact of gambling
on the United States, the individual states and Native American tribes.
Additional federal regulation may result from hearings by the National Gambling
Impact and Policy Commission. Any new Federal or state legislation could have a
material adverse effect on us.
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We currently hold no gaming or liquor licenses and will therefore need to
obtain both types of licenses in connection with the opening and operation of
our casino. While we believe that we will be able to obtain such licenses, no
assurances can be given that such licenses will be issued or granted or, if
issued and granted, not subject to additional material restrictions or
subsequently revoked. The failure or inability to obtain any such licenses in a
timely manner, the imposition of additional material restrictions in connection
therewith or the subsequent revocation or suspension of any such license would
materially and adversely affect us and our casino.
MATERIAL AGREEMENTS
Casino Management Agreement
We entered into a casino management agreement with Hyatt Gaming on February
2, 2000, which was amended on March 14, 2000. Under the terms of the casino
management agreement, Hyatt Gaming will operate and manage our casino. Hyatt
Gaming may obtain the services of Hyatt Gaming affiliates to the extent
necessary for Hyatt Gaming to perform its obligations under the casino
management agreement. Hyatt Gaming intends to enter into a consulting agreement
with its affiliate, Hyatt Gaming Services, LLC, to perform obligations under the
casino management agreement. Hyatt Gaming will retain full responsibility and
liability for performance of all obligations under the casino management
agreement and will cause Hyatt Gaming Services to perform pursuant to its
consulting agreement in accordance with the terms and provisions of the casino
management agreement. Hyatt Gaming Services provides gaming services to Hyatt
Gaming and other Hyatt companies.
Construction, Furnishing and Equipping, Pre-Opening and Opening of our
Casino. Under the casino management agreement, we will engage and retain, at no
expense to Hyatt Gaming or its affiliates, the architects, designers,
specialists and contractors necessary to plan and complete our casino and to
design, select, purchase and install the furniture, fixtures and equipment.
Under the casino management agreement, Hyatt Gaming has reserved the right to
approve or to waive its right to approve our choices of architects, designers,
specialists and contractors. Hyatt Gaming has waived its right to approve
Steelman Ltd. as the architect, PCL as the general contractor, Blattner as the
excavation contractor and Building Sciences as the construction manager. Hyatt
Gaming will consult with us, Steelman Ltd. and other consultants, at our
request, to provide technical assistance in connection with the planning and
completion of our casino. For such services, we will pay Hyatt Gaming a
technical assistance services fee of $150,000, payable as follows:
o $100,000 on the commencement of construction of our casino, and
o $50,000 on the opening date of our casino.
In addition, we will reimburse Hyatt Gaming for its reasonable
out-of-pocket expenses incurred directly in connection with the performance of
technical assistance services pursuant to the casino management agreement. If
the casino management agreement terminates at any point, all earned but unpaid
technical assistance service fees will become due and payable.
Hyatt Gaming has waived its right to approve our preliminary design plans,
which include the "design program" for our casino. The "design program" for our
casino cannot be altered without our mutual agreement with Hyatt Gaming or Hyatt
Gaming's waiver of its right to approve. Hyatt Gaming has the right to approve
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or to waive approval of any additional and/or more detailed drawings, plans and
specifications for our casino, but only as to design functionality, aesthetics
and interior and exterior finishes consistent with Hyatt standards and
consistent with the preliminary design plan. In addition, Hyatt Gaming has the
right to approve or to waive approval of any material changes to the financing
for the construction, equipping and opening of our casino.
In addition, all reviews and approvals by Hyatt Gaming under the terms of
the casino management agreement are for the sole and exclusive benefit of Hyatt
Gaming, and no other person or party has the right to rely on any such reviews
or approvals.
Pre-Opening Budget. The pre-opening costs and expenses will be those
incurred during the pre-opening period for the staffing of our casino, for
pre-opening promotion and advertising and for the organization of our casino's
operations and services. Hyatt Gaming may not, without our approval, incur
aggregate pre-opening expenses for our casino in excess of $3.0 million. This
budgetary limit assumes that our casino's construction will commence no later
than September 14, 2000, and that the opening date of our casino shall not be
later than March 14, 2002.
Subject to certain limitations, Hyatt Gaming has the right, in our name, to
enter into contracts for pre-opening expenses and we will be liable for the
payment of obligations incurred in connection with such contracts.
Alternatively, Hyatt Gaming may, in its own name, incur and pay such pre-opening
expenses, in which case we will reimburse Hyatt Gaming for such pre-opening
expenses. Hyatt Gaming, however, has no obligation to incur pre-opening expenses
unless we first deposit $200,000 with Hyatt Gaming which can be used by Hyatt
Gaming for payment of pre-opening expenses.
Duties of the Manager. Under the casino management agreement, Hyatt Gaming
will operate our casino, as our agent. We and Hyatt Gaming have structured our
relationship under the casino management agreement to create an agency coupled
with an interest so that it is irrevocable except under the terms of the casino
management agreement.
The obligation of Hyatt Gaming to operate, maintain and manage our casino
will include, without limitation, managing the facility in a manner that is
consistent with the Colorado liquor and gaming laws and regulations, marketing
and advertising services, collection and payment services, service bureau
payroll/ personnel systems, establishment and implementation of accounting and
cost controls, legal services, security services and establishment and
implementation of policies and procedures for the operation of our casino.
Term. The original term of the casino management agreement commenced on
February 2, 2000 and will continue until the fifteenth anniversary of the
opening date of our casino, unless terminated sooner by either us or Hyatt
Gaming. Hyatt Gaming has the right to extend the original term for two
successive periods of five years each. In order to renew, Hyatt Gaming must
provide us with notice at least six months but no more than twelve months prior
to the end of the term in force, and Hyatt Gaming must not have committed an
uncured event of default. Renewal terms will be on the same terms, covenants and
conditions as set forth in the casino management agreement for the original
term. It is a condition of the exercise by Hyatt Gaming of any renewal option
that the simple average annual percentage return on cash equity in our casino,
as of the date such renewal option is exercised, is equal to or greater than
15%.
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Compensation. For each fiscal year, Hyatt Gaming will receive a basic fee
equal to three percent (3%) of the adjusted gross receipts of our casino and an
incentive fee equal to five percent (5%) of the earnings before interest, taxes,
depreciation and amortization for the appropriate fiscal year. For this purpose,
adjusted gross receipts mean the adjusted gross proceeds of our casino as
defined by the Colorado Limited Gaming Act (with certain adjustments to include
income from sources other than gaming) less all gaming taxes. The incentive fee
will be paid only to the extent that the earnings before interest, taxes,
depreciation and amortization is a positive number, and will be subordinated and
deferred as set forth in the indenture governing the notes.
Termination. Within 30 days after the loss of a Hyatt Gaming license
relating to our casino, we would have the right to terminate the casino
management agreement upon delivery of written notice by us to Hyatt Gaming of
such termination. If Hyatt Gaming does not manage our casino profitably or does
not otherwise meet performance criteria, we do not have the ability to terminate
the casino management agreement on that basis.
Hyatt Gaming has the right to terminate the casino management agreement
after written notice of termination in the event that:
o we do not commence construction of our casino by September 14, 2000;
o we do not open our casino by March 14, 2002;
o a loss of license event occurs with respect to a project license; or
o a loss of license event occurs with respect to Hyatt Gaming or its
affiliates with respect to another casino as a result of Hyatt
Gaming's management of our casino or investment in the second mortgage
notes.
In addition, we have the right to terminate the casino management agreement
in connection with any sale of our casino to a third party unaffiliated with us
or any of our shareholders after the third anniversary of the opening date of
our casino upon written notice and within certain time limitations. A
termination fee must be paid to Hyatt Gaming. The termination fee generally is
equal to the product of six times the average of the annual management fees
earned by and payable to Hyatt Gaming during the three fiscal years immediately
preceding the termination date.
Notwithstanding any termination of the casino management agreement pursuant
to the above provisions, we would continue to be liable to Hyatt Gaming for the
payment of all fees and other amounts due or accrued to Hyatt Gaming under the
casino management agreement to the date of such termination.
Events of Default. Upon an event of default, the non-defaulting party may
give the defaulting party notice of intention to terminate the casino management
agreement. Once an expiration period of fifteen days has passed, the casino
management agreement would end. Some significant events of default are as
follows:
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o failure to pay the other party amounts due within fifteen days of
notice of such failure; or
o failure to perform in any material respect, with certain exceptions,
the terms, covenants, undertakings, obligations or conditions set
forth in the casino management agreement, after proper notice of the
failure; or
o any default under the subordinated loan agreement or certain
provisions of the intercreditor, subordination and collateral
agreement; or
o insolvency or failure to pay debts as they become due by either party;
or
o assignment by either party for the benefit of its creditors; or
o commencement of a bankruptcy or similar proceeding or a proceeding to
appoint a receiver or similar official; or
o any default under any hotel management agreement we subsequently enter
into with Hyatt Gaming.
Assignment. Hyatt Gaming may assign or delegate any or all of its rights or
obligations under the casino management agreement, without our consent, to any
assignee affiliate or may assign all of its rights and obligations under the
casino management agreement to any assignee who also acquires all, or
substantially all, of the gaming or hotel assets of Hyatt Corporation or the
affiliated group (as defined pursuant to Section 1504 of the Internal Revenue
Code of 1986, as amended) of which Hyatt Corporation is a member and assumes its
obligations, including those under the casino management agreement. Upon an
assignment or delegation, Hyatt Gaming's obligations under the casino management
agreement would terminate unless the assignment is to an affiliate assignee. If
the assignment or delegation is to an affiliate assignee, Hyatt Gaming's
obligation will continue as if the assignment had not taken place. The
assignment by Hyatt Gaming of its rights under the casino management agreement
beyond what is provided above requires our approval.
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We have the right to sell, hypothecate or convey our casino or any portion
of our casino, or to assign our interest in the casino management agreement with
the prior approval of Hyatt Gaming. For these purposes a change of control will
be considered an assignment.
Indemnification. Hyatt Gaming will indemnify and hold harmless us and our
shareholders, directors, officers, employees and agents from any damages,
liabilities, costs, claims or expenses, including attorney's fees, attributable
to Hyatt Gaming's or any Hyatt Gaming affiliate's gross negligence, willful
misconduct, willful or reckless violation of any legal requirements or breach of
the casino management agreement, or based on any self-insurance placed with
Hyatt Gaming pursuant to a Hyatt Gaming self-insurance bid accepted by us. The
cost of such indemnification will be borne solely by Hyatt Gaming or such Hyatt
Gaming affiliate, as the case may be. If the loss is attributable to any other
reason or cause, the cost of such indemnification will be paid by Hyatt Gaming
out of our operating accounts and will be charged against adjusted net profits
and earnings before interest, taxes, depreciation and amortization, and will be
without recourse to Hyatt Gaming or its affiliates.
We will indemnify and hold harmless Hyatt Gaming and its affiliates and
their respective directors, officers, employees and agents from any and all
liabilities, losses, damages, costs and expenses arising out of or incurred in
connection with the management and operation of our casino or Hyatt Gaming's
position as our agent which are not covered by insurance. This indemnity does
not include losses attributable to gross negligence, willful misconduct, willful
or reckless violations of legal requirements or breach of the casino management
agreement by Hyatt Gaming, its affiliates or their employees or agents.
Non-Competition. If we or any affiliate owns, develops, operates or
franchises any other casino in Black Hawk or Central City, Hyatt Gaming will
continue to have the right to exercise its renewal options under the casino
management agreement; provided, that the renewal threshold will be reduced from
a 15% to 10% simple average annual percentage return on cash equity after the
first full year of operation of such casino. Notwithstanding the foregoing,
Hyatt Gaming will have the exclusive right of first refusal to manage, pursuant
to the terms of the casino management agreement, any gaming or hotel facility
owned developed or operated by us or any of our beneficiaries or their
respective affiliates that is located on or utilizes any portion of our casino
or the site related property. We have the right, subject to a first refusal by
Hyatt Gaming, to operate any additional casino project on the site related
property through an independent unaffiliated third party casino management
company.
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Hyatt Gaming has agreed that neither Hyatt Gaming nor any of its affiliates
will develop, operate or franchise any other casino bearing the name "Hyatt" at
any time during the term of the casino management agreement anywhere within the
State of Colorado. Notwithstanding the foregoing, if Hyatt Gaming or a Hyatt
Gaming affiliate controls or shares control as a developer or owner of a casino
in Denver, Colorado or within a five-mile radius of those city limits, Hyatt
Gaming must offer us the opportunity to invest cash equity in order to acquire
up to 45% of Hyatt Gaming's or such Hyatt Gaming affiliate's ownership interest
in such casino on market terms. If such offer is made, Hyatt Gaming or an Hyatt
Gaming affiliate will be free to develop and operate such casino which can bear
the name "Hyatt," regardless of whether we accept Hyatt Gaming's offer. These
restrictions will lapse and be of no further force or effect from and after the
expiration or earlier termination of the casino management agreement.
Bankruptcy. We have agreed that we will not commence or consent to any
case, proceeding or other action (1) seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of our company, or of its
debts, under any law relating to bankruptcy, insolvency, reorganization or
relief of debts, or (2) seeking appointment of a receiver, trustee or similar
official for us, or for all or any part of our property.
Subordination, Non-Disturbance and Attornment Agreement
Subordination. We have entered into a subordination, non-disturbance and
attornment agreement with Hyatt Gaming and the trustee under the indenture
governing the notes, on behalf of the holders of the notes. Under this
agreement, Hyatt Gaming agrees that the casino management agreement, including,
without limitation Hyatt Gaming's rights to payment of any amounts, Hyatt
Gaming's rights and remedies and Hyatt Gaming's liens and other interest, is and
will be subject and subordinate to the indenture governing the notes, the deed
of trust and the other documents governing the notes. Notwithstanding the
foregoing, we may pay Hyatt Gaming amounts under the casino management agreement
as they come due; however, we may not pay incentive fees payable under the
casino management agreement during periods when the indenture governing the
notes prohibit us from making such payments under the casino management
agreement. Any such obligations which are due under the casino management
agreement but which we are restricted from paying will accrue interest at the
second mortgage note rate. During such restricted periods, however, the basic
fee and other amounts due to Hyatt Gaming under the casino management agreement
will continue to be paid by us. If we do not continue to pay such amounts, Hyatt
Gaming may terminate the casino management agreement.
Non-Disturbance and Attornment. As long as no default exists which would
allow us to terminate the casino management agreement, neither we nor the
trustee will terminate the casino management agreement, and Hyatt Gaming's right
to manage our casino in accordance with the terms of the casino management
agreement will not be interfered with by any action of foreclosure upon the
security, title or other interest granted by the deed of trust or any other
documents governing the notes. In addition, should the land on which our casino
will be built, comprising trust property under the deed of trust, be acquired by
another party in connection with foreclosure under the deed of trust, Hyatt
Gaming retains its rights under the casino management agreement against the new
owner. Hyatt Gaming agrees to attorn to the new owner upon the foreclosure under
the deed of trust.
Miscellaneous. If an event of default occurs under any of the documents
governing the notes, the trustee has a right, prior to foreclosure, to assume
all of our rights under the casino management agreement. The trustee also has a
cure period after an event of default caused by us before Hyatt Gaming can begin
actions in response to the default. In the event of distribution of our assets
to creditors by reason of a receivership, dissolution or bankruptcy proceeding,
Hyatt Gaming is subordinate in payment to the holders of our notes, but has the
right to terminate the casino management agreement, unless all amounts, other
than the incentive fee, are paid to it currently. The subordination of
obligations to Hyatt Gaming under the subordination, non- disturbance and
attornment agreement will continue until all holders of our notes are paid in
full in cash.
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Architect's Agreement
On January 31, 2000, Windsor Woodmont, LLC entered into an architect's
agreement with Steelman Ltd., which has been assigned to us, whereby Steelman
Ltd. will provide complete architectural and interior design services for our
casino. It further provides that Steelman Ltd. will coordinate the design,
development and construction of our casino. Under this agreement, Steelman Ltd.
is required to obtain and maintain a professional liability insurance policy
that must cover project-specific errors and omissions.
Services Provided. Under the agreement the basic services provided by
Steelman Ltd. include schematic design, design development, construction
documents, bidding or negotiation and construction/administration of the
construction contract. Steelman Ltd. also has the right to request the addition
of any consultants to the project it reasonably believes are necessary which
could increase the total cost of our casino.
Fees. For the performance of its services, Steelman Ltd. will be paid a
total of $2.0 million, consisting of an initial payment of $500,000 and the
balance to be paid monthly on a percentage completion basis. It is agreed that
$200,000 of the $1.5 million balance will be allocated for cost reimbursement.
Compensation for reimbursement will be computed as a multiple of one times the
expenses incurred. In the event that Steelman Ltd. provides additional
authorized and approved services, it will be compensated by us on terms mutually
determined. This is not a guaranteed maximum price contract.
Architect Designs. Under the architect agreement, Steelman Ltd. will be
deemed the author and owner of the designs and retains all common law, statutory
and other reserved rights in the designs. Steelman Ltd. has licensed these
designs to us for use in connection with our casino under this agreement. Upon
the termination of the architect's agreement, the license will terminate and we
must return all originals of the designs and refrain from making further
reproductions, except that we can utilize the design documents when necessary
for effecting repairs to the project. Any new architect hired would, therefore,
be required to reproduce such designs. Furthermore, we cannot pledge our license
to these designs without the consent of Steelman Ltd.
Indemnification. We have agreed to indemnify and hold harmless Steelman
Ltd. in connection with any claims, suits, etc. arising out of unauthorized use,
reuse or modification of the designs.
Termination and Assignment. If the architect services or the construction
of our casino is stopped for more than 90 consecutive days, Steelman Ltd. may
terminate this agreement by giving not less than seven days written notice. The
architect agreement may also be terminated by either party upon not less than
seven days written notice should the other party fail to substantially perform
through no fault of the party initiating termination. We cannot assign the
architect's agreement without the written consent of Steelman Ltd. However, we
are permitted to assign the architect's agreement to an institutional lender
providing financing to our casino or to any affiliate of our casino. In
addition, we cannot assign any license grant to use the architect designs
without the prior written agreement of Steelman Ltd.
All contracts relating to the construction of our casino, including the
architect's agreement, have been assigned as security for the notes. See
"Description of Notes -- Security."
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Construction Management Agreement
The construction management agreement between Windsor Woodmont, LLC and
Building Sciences, Inc. dated February 1, 2000, as amended, which has been
assigned to us, provides that Building Sciences will provide construction
consulting and management services for the design and construction of our
casino. Building Sciences' services during the pre-construction phase commenced
in March, 2000. Their services will continue through the term of the
construction agreement with PCL. The fee to Building Sciences under the
construction management agreement is $330,000. Additionally, Building Sciences
will be reimbursed by us for the direct cost of all out-of-pocket expenses. The
fee is subject to mutually agreed upon adjustments if there is a material change
in the scope of the project or the period of time in which Building Sciences'
services are to be performed. The construction management agreement can be
terminated by us or Building Sciences upon ten days written notice.
All contracts relating to the construction of our casino, including the
construction management agreement, have been assigned as security for the notes.
See "Description of Notes -- Security."
Construction Agreement
The construction agreement between Windsor Woodmont, LLC and PCL, dated
January 11, 2000, which has been assigned to us, provides that PCL, directly and
indirectly through various subcontractors, will build our casino, excluding the
excavation work, which will be performed by Blattner. PCL may only subcontract
work to subcontractors who are approved by us and Steelman Ltd. Steelman Ltd.
also has certain rights under the construction agreement to approve work to be
done by PCL.
Date of Commencement. The date of commencement of the construction
agreement was March 16, 2000; however, PCL will not perform any work at or upon
the project site until receipt of a written construction notice to proceed,
which we will issue upon substantial completion of the excavation work at the
project site by Blattner. Within 10 days of receipt of the construction notice
to proceed, PCL will commence performance of the work at or on the project site.
PCL is not required to commence work, however, unless it also received evidence
by us, along with the pre-construction notice to proceed, of sufficient
financing to meet financial obligations under the construction agreement.
Completion Requirements. The construction agreement requires PCL to
substantially complete the project within 532 days of receipt of the
pre-construction notice to proceed, which was issued on March 16, 2000. The
project will not be considered to be substantially completed unless we can
occupy or utilize the facility for its intended use and a temporary certificate
of occupancy for the project has been issued by the appropriate governmental
authority. PCL is not responsible for delays by the City of Black Hawk in
issuing the certificate of occupancy.
To discourage delays, we require PCL to pay liquidated damages for each
calendar day substantial completion is delayed of $5,000 per day for the first
seven days of delay and $10,000 per day for any delay after the initial
seven-day period. PCL's aggregate liability for any and all liquidated damages
is limited to a maximum of $250,000.
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Guaranteed Maximum Price. Subject to certain conditions, PCL has also
guaranteed to us that the cost of the project will not exceed $42.2 million,
consisting of the contractual guaranteed maximum price amount of $41.7 million,
plus $0.5 million of additional budgeted construction costs to be performed by
PCL. The guaranteed cost and/or the substantial construction completion date
will be adjusted in the following circumstances:
o there is a change in the architectural drawings and specifications
which represents a scope change in the architectural requirements,
which could occur during either the preliminary or final stage of
creating the drawings and specifications as defined by the
construction agreement;
o there is a change in construction work that is required which
represents a substantial change in the construction work originally
agreed, and the work change is requested following the proper
procedures under the construction agreement;
o there is an excusable event such as, among others, delays resulting
from our acts or omissions to the extent such delays arise from
circumstance beyond the reasonable control and without the fault or
negligence of PCL, acts of God, fires, explosions, etc., occurrence of
a change of law and discovery of any pre-existing hazardous substances
at the site;
o there is a difference between the actual costs for work done and the
allowances as provided for under the agreement which would result in
an adjustment in the guaranteed maximum price; and
o under certain circumstance, we require use of a subcontractor whose
bid is outside the requirements under the guaranteed maximum price.
Contract Sum. Under the construction agreement, we will pay PCL a contract
sum for its performance. The contract sum will consist of the cost of the work
and a fee of 5% of the cost of the work, except as limited by the guaranteed
maximum price. In addition, PCL shall be entitled to an amount equal to 5% of an
increase in the cost of the work directly attributable to an approved change
order in order to reimburse PCL for its actual home office overhead costs
incurred as a result thereof.
If an agreed upon work change would increase the guaranteed contract price
by more than $200,000, we must deliver additional evidence of sufficient
financial arrangements or PCL will be entitled to terminate its work. In
addition, if the contract sum is less than the guaranteed maximum price, the
savings will be shared with 75% to us and 25% to PCL, provided PCL's share will
not exceed $250,000.
Failure to Meet Completion Date. In the event that PCL fails, or appears
likely to fail, to complete the work on time, we have the right to impose any or
all of the following options:
o require PCL within 14 working days to substantiate its capability to
get back on schedule;
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o require PCL to increase its work force, work overtime and/or extra
shifts and do whatever else is required by them until PCL gets back on
schedule to complete its work by the scheduled completion date;
o withhold payment of fees, until such time as PCL returns to schedule;
and/or
o contact or visit the factory, plant or distribution center whose
production or delivery schedule may be critical to the scheduled
completion of a portion of the work, and expedite same, at PCL's
expense.
Termination. PCL may terminate the construction agreement if there are
repeated suspensions, delays or interruptions by us constituting in the
aggregate more than the total number of days scheduled for completion of the
agreement or 120 days in any 365-day period (whichever is less). PCL may also
terminate the construction agreement if the work is stopped for 30 days through
no fault of its own or the subcontractors for the following reasons, among
others:
o issuance of an order of a court having jurisdiction;
o act of government; or
o we are guilty of a material breach of any of the agreements.
We may terminate the construction agreement for cause or we may suspend the
agreement for our convenience. Terminations by either party may have certain
financial consequences to each party.
Miscellaneous. We have the right to require a payment bond or performance
bond by PCL. We have agreed that PCL either will have a performance bond or will
provide us with a corporate guarantee.
All contracts relating to the construction of our casino, including the
construction agreement, have been assigned as security for the notes. See
"Description of Notes -- Security."
Excavation Agreement
The excavation agreement between Windsor Woodmont, LLC and Blattner, as
most recently amended on December 31, 1999, which has been assigned to us,
provides that Blattner will perform all necessary excavation work. Blattner will
be paid a contract sum of $8.7 million for performing the work under the
excavation agreement, of which approximately $5,413,651 has been paid as of the
date of this prospectus. The excavation agreement is not a guaranteed maximum
price contract; rather, it is a stipulated sum contract. The excavation work was
commenced by Blattner on July 1, 1998. The excavation work was subsequently
suspended in November, 1998 when Windsor Woodmont, LLC was unable to obtain
financing to complete the casino facility. The excavation work was re-commenced
in March, 2000.
Completion Date. Under the excavation agreement, substantial completion of
the work must occur not later than 147 calendar days after the date of
re-commencement. Blattner's scheduled completion date for its work may be
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dependent upon actions of third parties. If Blattner fails to achieve
substantial completion within the time period specified, liquidated damages will
be payable by Blattner. Blattner's payment schedule would be $3,000 for the
first day of delay and $250 plus the amount due as liquidated damages on the day
prior until the daily amount of damages totals $11,500. Conversely, if Blattner
achieves substantial completion prior to the end of the time period specified,
it will be entitled to a bonus payment of $2,000 multiplied by the number of
calendar days by which the date Blattner achieves substantial completion
precedes the required date.
Termination of Suspension Without Penalty. Blattner could terminate or
suspend the excavation agreement without penalty:
(a) if the work is stopped for a period of 30 days through no fault of
Blattner or its subcontractors for the following reasons:
(1) issuance of an order of a court having jurisdiction;
(2) act of government; or
(3) because the architect or construction manager has failed to issue a
certificate for payment without notifying Blattner of the reason for
withholding such certification, or because we have failed to make
payment on a properly submitted certificate for payment; or
(b) if the work is stopped for a period of 60 days through no fault of
Blattner or its subcontractors because we have persistently failed to fulfill
our obligations under the contract documents with respect to matters important
to the progress of the work.
Exemptions. Under the excavation agreement, there are certain circumstances
that can give rise to an increase in the amount payable to Blattner or an
extension of the date by which substantial completion must be achieved. These
circumstances include:
o a change in the excavation drawings and specifications which
represents a "scope change" in the excavation requirements, as defined
by the excavation agreement;
o a change in the excavation work to be performed which represents a
substantial change from the work originally required, and the work
change is requested after the proper procedures are followed under the
excavation agreement; and
o an excusable event such as, for example, delays resulting from acts or
omissions to the extent such delays arise from circumstances beyond
the reasonable control and without the fault or negligence of
Blattner, acts of God, fires, explosions, etc., occurrence of a change
of law, and discovery of any pre-existing hazardous substances at the
site.
The price of the excavation agreement is based on drawings and
specifications which may be subject to change. If there is a "scope change"
between the preliminary plans and the final plans, there could be a material
increase in the excavation agreement price even though it is a stipulated sum.
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All contracts relating to the construction of our casino, including the
excavation agreement have been assigned as security for the notes. See
"Description of Notes -- Security."
Subdivision Agreement
On December 29, 1997, the Board of Aldermen of the City of Black Hawk,
after holding all necessary public hearings and having received a recommendation
of approval from the Black Hawk Planning Commission, approved the final plat for
the property on which our casino will be constructed, pursuant to which Windsor
Woodmont LLC dedicated property for Richman Street. Also on that date, Windsor
Woodmont, LLC entered into the subdivision agreement, as amended, with the City
of Black Hawk, pursuant to which Windsor Woodmont, LLC (or we, as its assignee)
will be required to dedicate an additional right-of-way for Richman Street, and
to make certain improvements to Richman Street and to the portion of Highway 119
that abuts Windsor Woodmont, LLC's property. We have assumed all obligations
under the subdivision agreement.
Public Improvements. The subdivision agreement requires us to dedicate and
convey by special warranty deed, free and clear of all liens and encumbrances,
sufficient additional right-of-way for Richman Street to construct a 40-foot
wide right-of-way and to construct certain improvements to Richman Street,
including, without limitation: (1) the construction of three 12-foot vehicular
lanes with one and one-half foot curb and gutters on both sides of the street
along the entire length of the property from Highway 119 to the northerly
property boundary line, (2) the construction of rock-faced retaining walls and
erosion control along the east side of the Richman Street improvements, (3) the
construction of various sidewalks, street lighting, striping and signage, and
(4) other necessary improvements to Richman Street as determined by the City of
Black Hawk. The subdivision agreement also requires us to construct (in
accordance with the approvals and requirements of the Colorado Department of
Transportation and concurrence with the City of Black Hawk Public Works
Department) certain improvements to Highway 119. We are also responsible for
constructing the signals necessary at the intersection of Richman Street and
Highway 119, constructing and installing landscaping along the Richman Street
and Highway 119 frontage in accordance with the landscaping plan approved by the
City of Black Hawk and constructing and maintaining for perpetuity drainage
improvements along the Richman Street and Highway 119 frontages. In addition, we
have agreed to be responsible for the construction and maintenance of the
channel improvements and flood control facilities that are required pursuant to
our request for a conditional letter of map revision permit from the Federal
Emergency Management Agency. Further, in the event of an emergency requiring an
immediate response by the City of Black Hawk related to flood control structures
owned by us, we have agreed to reimburse and indemnify the City of Black Hawk
for all costs and expenses associated with the City of Black Hawk's response to
such emergency. Finally, we have agreed to install and complete (at our expense)
all necessary water lines, sewer lines, fire hydrants, water or sewer
distribution facilities, drainage structures and paved streets, including curbs
and gutters, as approved by the Director of Public Works of the City of Black
Hawk.
Upon completion of the improvements, we must convey marketable title to
such improvements to the City of Black Hawk, free and clear of all liens or
encumbrances, including liens or encumbrances arising under the indenture
governing the notes. We are required to warrant the improvements for one year
after certification by the Director of Public Works of the City of Black Hawk
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(or other appropriate party) that the same conforms with specifications approved
by such party, as appropriate (except water improvements, which we will warrant
for three years). Subject to a provision for force majeure, we are required to
complete the improvements, including the required inspections thereof, by
December 31, 2001. In addition, upon the City of Black Hawk's acceptance of the
improvements, the City of Black Hawk will convey to us (1) a certain portion of
Richman Street as realigned, and (2) certain rockbolt easements necessary for us
to complete the development.
Estimated Costs of the Improvements. The subdivision agreement requires us
to bear the costs of the improvements, which we estimate will be approximately
$836,108, which is included in the construction costs of our casino. This
estimate of the cost of the public improvements is subject to increase based on
a multitude of factors, including, without limitation: (1) the City of Black
Hawk's ability to request the construction of any other necessary improvements
to Richman Street, which request could materially increase our current estimate
of the cost of the public improvements, and (2) the City of Black Hawk's ability
to reserve the right to adjust the cost of the public improvements on an annual
basis. Specifically, the City of Black Hawk has the right to increase the
estimated cost based upon its review of any changes in the Construction Costs
Index as published by the Engineering News Record. In addition, we will be
required to reimburse the City of Black Hawk for certain costs and fees for
services rendered in connection with the review of the subdivision of the land
and an administrative fee not to exceed 15% of the actual costs of such
services. We will also bear any expenses relating to the City of Black Hawk's
engineering review. In addition, we have agreed to provide, at our expense, all
the necessary engineering designs, surveys, field surveys and incidental
services relating to the construction of the public improvements.
Performance Guarantee. The subdivision agreement requires that our
obligation to ensure the performance and completion of the public improvements
be secured by an irrevocable letter of credit or other agreed upon securities to
which the City of Black Hawk is the beneficiary. The amount of the irrevocable
letter of credit or other agreed upon securities must be equal to 110% of the
estimated costs of the public improvements. This collateral security requirement
has been satisfied by an irrevocable letter of credit in the amount of $919,718.
The estimated costs of the public improvements is a figure mutually agreed upon
by the City of Black Hawk and us, but the City of Black Hawk may require that
the amount be increased based on the final construction documents or to take
into account any increases that the City of Black Hawk's estimate of the cost of
the improvements may be subject. Specifically, the City of Black Hawk has
reserved the right to increase the amount of the irrevocable letter of credit
based on any annual adjustment to the cost of the public improvements. Such
increases in the amount of the letter of credit could lead to increased costs
and bank fees to us based on amendments to the letter of credit, as well as any
reissuance of the letter of credit. The City of Black Hawk may draw upon the
letter of credit to complete the improvements in the event we do not complete
them by December 31, 2001, subject to the provision for force majeure. Upon
completion of the improvements and the approval of the Director of Public Works
of the City of Black Hawk, the City of Black Hawk will retain for one year at
least 20% of the costs of improvements.
Miscellaneous. The City of Black Hawk's remedies for breach of the
subdivision agreement include, but are not limited to, refusing to issue a
building permit or certificate of occupancy, the revocation of any building
permit previously issued under which construction directly related to such
building permit has not commenced, drawing upon the letter of credit or any
other remedy available at law. We will be required to indemnify the City of
Black Hawk and its representatives against any claims arising from our acts or
these or our agents. We may not transfer or assign any of our rights or
obligations under the subdivision agreement without the prior written consent of
the City of Black Hawk.
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MANAGEMENT
Hyatt Gaming will manage the operations of our casino. See "Material
Agreements." All directors and officers, and certain employees of our company
and Hyatt Gaming must be determined suitable and licensed by the Colorado
authorities. We cannot assure that any or all of the necessary directors,
officers and employees will be deemed suitable for licensing. Subject to such
approval, below are the directors and the executive officers of our company,
together with their respective ages as of the date of this prospectus. Jess
Ravich, the Chairman and Chief Executive Officer of U.S. Bancorp Libra, in his
capacity as trustee for the Ravich Revocable Trust of 1989, which is a holder of
our series B preferred stock, has the right to designate one member of our board
of directors, and has initially designated himself.
Name Age Position
---- --- --------
Daniel P. Robinowitz 60 Chairman of the Board, President and Chief
Executive Officer
Irving C. Deal 72 Vice Chairman of the Board
Craig F. Sullivan 53 Director
Michael L. Armstrong 49 Executive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary
Timothy G. Rose Executive Vice President-- Casino
43 Operations and Development
Donald J. Malouf 64 Secretary and Director
Jerry L. Dauderman 55 Director
Jess Ravich 42 Director
Daniel P. Robinowitz. Mr. Robinowitz is oPresident and Chief Executive
Officer. Mr. Robinowitz has served as a director since our inception. Since
1980, Mr. Robinowitz has been the founder, managing partner and Chairman of the
Board of Woodmont Development Co., Inc., a real estate development company. Mr.
Robinowitz was an executive officer of Grand Palais Riverboat, Inc. and Hemmeter
Enterprises, Inc., which were casino companies, each of which filed for
corporate reorganization under the U.S. bankruptcy laws in November 1995,
approximately 18 months after Mr. Robinowitz's resignation as a director and
executive officer of such entities.
Irving C. Deal. Mr. Deal is our Vice Chairman of our Board. Mr. Deal has
served as a director since our inception. Since October 1975, Mr. Deal has been
the Chief Executive Officer and Chairman of the Board of Normandy, Inc., a real
estate development company, and is also the Chairman of the Board of each of
Normandy Inc.'s subsidiaries. Mr. Deal received a Bachelor of Arts in Sociology,
cum laude degree from Stanford University, and served for a term of ten years
from March 1985 through April 1995 on the Stanford Board of Trustees. He also
served as Chairman of the Stanford Real Estate Commission for a term of two
years.
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Craig F. Sullivan. Mr. Sullivan has been a director since March 2000. Mr.
Sullivan has been the President of Sullivan and Associates since March 1998.
From March 1995 to March 1998, Mr. Sullivan was the Chief Financial Officer and
Treasurer of Primadonna Resorts, Inc., a casino company. During that same time
period, he also served on the Board of New York-New York Hotel Casino in Las
Vegas. From 1990 until 1995, Mr. Sullivan was Treasurer for Aztar, a casino
operating company. Since September 1998, Mr. Sullivan has been a director of
Monarch Casino and Resort, Inc.
Michael L. Armstrong. Mr. Armstrong is our Executive Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary. From December, 1980 to
March, 2000, Mr. Armstrong was the Chief Financial Officer of Normandy, Inc. Mr.
Armstrong was also the President and a Director of Normandy, Inc. and the Vice
President of each of Normandy, Inc.'s subsidiaries. Prior to joining Normandy,
Inc., Mr. Armstrong worked at Deloitte & Touche for nine years. He is a
Certified Public Accountant.
Timothy G. Rose. Mr. Rose has been our Executive Vice President-- Casino
Operations and Development since July 1998. Mr. Rose has been President of
R.O.I. Gaming, Inc., a gaming industry consulting firm, since June 1990. Between
June 1996 and June 1998, Mr. Rose served as a Director of Coopers & Lybrand
LLP's National Hospitality and Gaming Group in Las Vegas. Mr. Rose has 20 years
of hospitality experience, including over 16 years of experience in the gaming
industry. He worked for over ten years in the gaming industry in Atlantic City,
New Jersey, including positions as Senior Vice President at Trump Castle Casino
Resort from February 1989 through June 1990 and Vice President of Marketing at
Trump Plaza Casino Hotel from February 1986 through January 1989.
Jerry L. Dauderman. Mr. Dauderman has served as a director since March
2000. He is currently a director of CT Realty, The Stowell Co. and CDFC, Inc.
Mr. Dauderman is currently self-employed.
Donald J. Malouf. Mr. Malouf has served as a director since March 2000 and
as Secretary since April, 2000. Since 1967, Mr. Malouf has been an attorney with
the law firm of Malouf, Lynch, Jackson and Swinson, P.C. and its predecessors,
where he has held various titles as an officer. Mr. Malouf has also been a
Manager, Secretary and Vice President of Five States Energy, LLC and its related
entities since 1995.
Jess Ravich. Mr. Ravich was appointed to the board of directors by The
Ravich Revocable Trust of 1989 effective March 17, 2000. He is the founder,
Chairman and Chief Executive Officer of U.S. Bancorp Libra, the placement agent
for our unit offering, for which he exercises ultimate supervision over all
sales, trading and capital markets and corporate finance transactions. Prior to
founding Libra Investments in 1991, Mr. Ravich was Executive Vice President of
the fixed income department of Jefferies & Company, a Los Angeles based
brokerage firm. Prior to Jefferies, Mr. Ravich was a Senior Vice President at
Drexel Burnham Lambert. Mr. Ravich is a graduate of the Wharton School at the
University of Pennsylvania, magna cum laude, and of Harvard Law School, magna
cum laude and editor of the Harvard Law Review. He serves on the board of
directors of Cherokee, Inc., Communications Intelligence Corporation and
numerous private corporations, and serves on the board of trustees of the
Wharton School.
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Board of Directors
Our bylaws provide that the number of our directors may be established by
the board of directors but may not be fewer than two nor more than fifteen. Any
vacancy may be filled, at any regular meeting or at any special meeting called
for that purpose, by a majority of the directors then in office. Once elected,
directors serve a one-year term or until their successors are duly elected and
qualified. Holders of shares have no right to cumulative voting for the election
of directors. At each annual meeting of shareholders, the holders of a majority
of the issued and outstanding shares will be able to elect all of the directors.
Directors may be removed by the affirmative vote of the holders of a majority of
the issued and outstanding shares entitled to vote on such matters. So long as
The Ravich Revocable Trust of 1989 owns shares of our series B preferred stock,
Jess Ravich, acting in his capacity as trustee, is entitled to nominate one
person for election as a director on our board of directors. The director
designated by The Ravich Revocable Trust is subject to removal by The Ravich
Revocable Trust.
Limited Liability and Indemnification
Colorado law permits a Colorado corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its shareholders for monetary damages except for liability
resulting from:
o a breach of a director's duty of loyalty to us or our shareholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o violations of Section 7-108-403 of the Colorado Business Corporation
Act; or
o transactions from which a director directly or indirectly derived an
improper benefit.
Our articles of incorporation contain a provision which limits the
liability of our directors and officers to the maximum extent permitted by
Colorado law.
In addition, our bylaws provide that we will, to the fullest extent
permitted by Colorado law in effect from time to time, indemnify and hold
harmless our officers and directors from and against all expense, liability and
loss, including attorneys' fees, actually and reasonably incurred by such person
in connection with such proceeding and such indemnification, only if such
proceeding is authorized by the board of directors. The bylaws further provide
that we may, by action of the board of directors, provide indemnification to our
employees and agents with the same scope and effect as the indemnification of
our officers and directors. We are permitted under the bylaws to purchase and
maintain insurance and to advance expenses to directors and officers and others
to cover certain liabilities and proceedings.
Employment Agreements
As of the date of this prospectus, we do not have any written employment
agreements with any of our executive officers. However, we have agreed to pay
Daniel P. Robinowitz an annual salary of $240,000, Timothy G. Rose an annual
salary of $180,000, and Michael L. Armstrong an annual salary of $120,000,
commencing March 2000.
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EXECUTIVE COMPENSATION
The following table sets forth certain information as to the compensation
paid to our executive officers for services rendered during the last two fiscal
years.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Annual Compensation
------------------------------------------------------------------------------------------------
Name and Other Securities
Principal Annual Underlying
Position Year Salary Bonus Compensation Options
-------- ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Daniel P. Robinowitz,
President and CEO 1999 0 545,440(1) 0
1998 0 545,460(1) 0
Michael L. Armstrong,
Exec. Vice President,
CFO, Treasurer and
Assistant Secretary 1999 0 0 0 4,091(2)
1998 0 0 0 4,091(2)
Timothy G. Rose,
Exec Vice President -
Casino Operations and
Development 1999 182,500(3) 0 0 6,429(2)
1998 182,500(3) 0 0 6,429(2)
</TABLE>
----------------
(1) These amounts were accrued by Windsor Woodmont, LLC and are included in the
$2 million which was paid to Mr. Robinowitz in March 2000 by the payment of
$300,000 in cash and $1.7 million of our series A preferred stock. See
"Certain Relationships and Related Transactions."
(2) These amounts represent options to purchase shares of our common stock
which are held of record by Windsor Woodmont, LLC, which options were
granted by Windsor Woodmont, LLC as compensation for services rendered in
connection with the project.
(3) The entire amount shown for 1998, plus $38,020 of the amount shown for
1999, was paid by Normandy, Inc., on behalf of Windsor Woodmont, LLC, for
consulting services rendered by Mr. Rose and then billed to Windsor
Woodmont LLC as a job cost. Normandy, Inc. later converted the debt to
shares of our common stock. The balance of $144,480 was paid to Mr. Rose in
March, 2000 out of the proceeds of our unit offering. See "Certain
Relationships and Related Transactions."
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Option Plan
On April 14, 2000, our board of directors approved the Incentive Stock
Option Plan of Windsor Woodmont Black Hawk Resort Corp. which provides for the
grant of options to purchase an aggregate of not more than 150,000 shares of our
common stock. The purpose of the plan is to promote our long-term growth and
profitability by providing key people with incentives to improve stockholder
value and contribute to our growth and financial success and by enabling us to
attract, retain and reward the best-available persons.
The plan provides for the granting of both incentive stock options
qualifying under Section 422 of the Internal Revenue Code of 1986 and
nonqualified stock options, stock appreciation rights, restricted or
unrestricted stock awards, phantom stock, and performance awards. Awards of
incentive stock options under the plan are limited to employees and must have an
exercise price at least equal to the fair market value of our common stock at
the date of grant, but nonqualified stock options may have an exercise price
less than fair market value.
The plan will be administered by the board of directors or by a committee
appointed by the board of directors which determines the persons to be granted
options under the plan, the number of shares subject to each option, the
exercise price of each option and the option period.
The plan has not yet been approved by the shareholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Development Services and Success Fees
Upon closing of the unit offering, we paid Daniel P. Robinowitz $2.0
million for past salaries and other project development costs, including
reimbursement of expenses, incurred in connection with the development of our
casino. Such services included:
o site selection;
o market analysis;
o product concept design;
o preparation of feasibility studies;
o interviewing, selecting and coordinating all consultants, including
architects, engineers, a general contractor, an excavation contractor,
a project manager, a construction manager, attorneys, investment
bankers, accountants and other consultants;
o obtaining necessary governmental approvals;
o negotiating necessary contracts with Hyatt Gaming; and o structuring
and raising necessary debt and equity financing.
Such sums were paid to Mr. Robinowitz in the form of $300,000 in cash and
$1.7 million of our series A preferred stock.
In addition, we have agreed to pay Mr. Robinowitz a success fee of up to
$0.8 million. The payment of the success fee to Mr. Robinowitz will be deferred
until the construction of the project is complete and the casino is open, and
will only be due if there are funds remaining in the completion reserve accounts
after all construction and other project costs have been paid.
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We have also paid a success fee in the amount of $250,000 to Timothy Rose.
This amount was paid to Mr. Rose upon the closing of the unit offering in March
2000.
Loans and Conversions
Jerry L. Dauderman loaned Windsor Woodmont, LLC an aggregate of $1.6
million to fund land acquisition and project costs. In January 2000, Mr.
Dauderman agreed to convert the principal amount of such loan into 78,792 shares
of our common stock, and agreed to waive any interest owed to him under such
loan. Mr. Dauderman is one of our directors.
Paul Steelman loaned Windsor Woodmont, LLC an aggregate of $950,000 to fund
land acquisitions and project costs. In January 2000, Mr. Steelman agreed to
convert the principal amount of such loan into 46,783 shares of our common
stock, and agreed to waive any interest owed to him under such loan. Mr.
Steelman is a principal and a shareholder in Steelman Ltd., our architect.
Patricia Deal loaned Windsor Woodmont, LLC an aggregate of $265,000 to fund
land acquisition and project costs. In January 2000, Ms. Deal agreed to convert
the principal amount of such loan into 16,061 shares of our common stock, and
agreed to waive any interest owed to her under such loan. Ms. Deal is a member
of Windsor Woodmont, LLC and a Vice President and a director of Normandy, Inc.,
one of our other shareholders. In addition, Ms. Deal is married to Irving C.
Deal, our Co-Chairman of the Board.
Normandy, Inc. loaned Windsor Woodmont, LLC an aggregate of $3.2 million to
fund land acquisition and project costs. In January 2000, Normandy, Inc. agreed
to convert the principal amount of such loan into 157,584 shares of our common
stock, and agreed to waive any interest owed to it under such loan. Normandy,
Inc. is a member of Windsor Woodmont, LLC. Irving C. Deal, our Co-Chairman of
the Board, is the Chairman of the Board and Chief Executive Officer of Normandy,
Inc.
In September 1997, Windsor Woodmont, LLC entered into a promissory note in
the amount of $5,400,000 with Kennedy Funding, Inc. and Anglo American
Financial. Irving Deal and Daniel Robinowitz provided a guarantee of this
promissory note. No consideration was paid to either Mr. Deal or Mr. Robinowitz
in connection with the guarantee. This debt was paid off with the net proceeds
from the unit offering.
Settlement Agreement with Our Architect
Windsor Woodmont LLC entered into a settlement agreement, dated January 31,
2000, with Steelman Ltd. and Mr. Paul Steelman in connection with the lien and
notice of lis pendens that Mr. Steelman had placed against the hotel/casino
complex when construction first commenced in 1998. The settlement agreement
resolves issues relating to Steelman Ltd.'s interests under a deed of trust and
assignment of rents, leases and leasehold interests made at that time. Pursuant
to this settlement agreement, the lien, the lis pendens, and Steelman Ltd.'s
interest in the assignment of rents, leases and leasehold interests were
resolved and Steelman Ltd.'s interest in the deed of trust was reconveyed. As a
condition of the settlement agreement, Mr. Steelman received cash in the amount
of approximately $1.6 million and 12,000 shares of our series A preferred stock
having a value of $1.2 million, concurrently with the closing of the unit
offering.
Consulting Arrangements
Windsor Woodmont LLC has granted Craig F. Sullivan, one of our directors,
options to purchase 10,000 shares of our common stock held of record by the LLC.
and in March 2000, we paid $150,000 from the net proceeds of the unit offering
to Mr. Sullivan, for consulting services he provided to us and to Windsor
Woodmont, LLC in connection with the project. In addition, in April, 2000, we
paid Mr. Sullivan $50,000 for services rendered in connection with the unit
offering.
In April 2000, we paid $47,250 to Donald J. Malouf, our Secretary and one
of our directors, from the net proceeds of the unit offering, for services
rendered in connection with the offering.
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Reimbursements and Salary Arrangements
Timothy G. Rose has provided consulting services to us and to Windsor
Woodmont, LLC since September 1997 in connection with the project. Total
consideration owed to Mr. Rose for providing such consulting services, together
with a success fee in the amount of $250,000, was $736,000. Of this amount,
approximately $421,000, which includes the entire amount of the success fee, was
paid to Mr. Rose in March 2000 from the net proceeds of the unit offering. The
balance of $315,000 was paid to Mr. Rose by Normandy, Inc. which then billed the
amounts to Windsor Woodmont LLC as a job cost. The debt was later converted to
shares of our common stock as part of the loan disclosed under "-- Loans and
Conversions," above.
Since the closing of the unit offering in March 2000, we are paying Daniel
P. Robinowitz an annual salary of $240,000, Timothy G. Rose an annual salary of
$182,000, and Michael L. Armstrong an annual salary of $120,000.
Transactions with Our Placement Agent and its Affiliates
Jess Ravich, one of our directors, is the founder, Chairman and Chief
Executive Officer of U.S. Bancorp Libra, the placement agent for our unit
offering. In conjunction with the offering, we paid U.S. Bancorp Libra a
placement fee in the amount of $3,500,000 and warrants to purchase 80,031 shares
of our common stock at $0.01 per share, exercisable until March 15, 2010. In
addition, U.S. Bancorp Libra, or its affiliates, purchased 6,000 shares of our
series B preferred stock for a purchase price of $100 per share, and warrants to
purchase 51,412 shares of our common stock at $0.01 per share, exercisable until
March 15, 2010.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of June 30, 2000 by (1) each person who we know
owns beneficially more than 5% of our common stock, (2) each named executive
officer, (3) each director, and (4) all our executive officers and directors as
a group. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, we believe that each shareholder named in
this table has sole investment and voting power with respect to the shares
indicated.
Common Stock
Beneficially Owned
------------------
Name and Address of Beneficial Owner Number Percent
------------------------------------ ------ -------
Windsor Woodmont, LLC(1) 107,500 10.7%
12160 North Abrams Road, Suite 516
Dallas, Texas 75243
APR 21st Century Trust(2) 83,290 8.3%
12160 North Abrams Road, Suite 516
Dallas, Texas 75243
AMR 21st Century Trust(2) 83,290 8.3%
12160 North Abrams Road, Suite 516
Dallas, Texas 75243
Normandy, Inc.(3) 101,525 10.2%
3811 Turtle Creek Blvd.
Suite 250
Dallas, TX 75219
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Common Stock
Beneficially Owned
------------------
Name and Address of Beneficial Owner Number Percent
------------------------------------ ------ -------
Patricia Deal(4) 95,802 9.6%
c/o Normandy, Inc.
3811 Turtle Creek Blvd.
Suite 250
Dallas, TX 75219
Jerry L. Dauderman 78,792 7.9%
3 Hillsborough
Newport Beach, CA 97660
Larry Elins 54,545 5.5%
15260 Ventura Blvd.
Suite #1020
Sherman Oaks, CA 91403
Daniel P. Robinowitz(5) 146,522 14.7%
c/o Windsor Woodmont, LLC
12160 North Abrams Road, Suite 516
Dallas, Texas 75243
Irving C. Deal(6) 209,025 20.9%
c/o Normandy, Inc.
3811 Turtle Creek Blvd.
Suite 250
Dallas, TX 75219
Michael L. Armstrong(7) 15,000 1.5%
c/o Windsor Residential Company
Candlewood Suite
7930 N. Stemmons Freeway
Dallas, TX 75247
Timothy G. Rose(8) 30,171 3.0%
8117 Golfers Oasis
Las Vegas, NV 89129
Craig F. Sullivan(7) 10,000 1.0%
12 Islesworth Drive
Henderson, NV 89012
Donald J. Malouf(9) 166,580 16.7%
c/o Malouf Lynch Jackson and Swinson, P.C.
600 Preston Commons East
8115 Preston Road
Dallas, Texas 75225
U.S. Bancorp Investments, Inc.(10) 122,360 10.9%
11766 Wilshire Boulevard, #870
Los Angeles, California 90025
Ableco Holding LLC(11) 152,521 13.2%
C/O Cerberus Partners
450 Park Avenue, 28th Floor
New York, New York 10022
Madeleine L.L.C.(12) 188,509 15.9%
C/O Cerberus Partners
450 Park Avenue, 28th Floor
New York, New York 10022
Jess Ravich(13) 132,642 11.7%
C/O U.S. Bancorp Libra
11766 Wilshire Boulevard, #870
Los Angeles, California 90025
All our executive officers and directors 641,232 56.6%
as a group
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------------
(1) These shares are being held by Windsor Woodmont, LLC for the benefit of
certain individuals who hold options to acquire our common stock. Such
individuals may be deemed to beneficially own their respective shares since
the options are currently exercisable. Daniel P. Robinowitz and Irving C.
Deal may also be deemed to beneficially own these shares since, as managers
of Windsor Woodmont, LLC, they each have the power and authority to vote
such shares.
(2) Donald J. Malouf is the trustee of this trust. As the trustee, Mr. Malouf
has the power and authority to vote and to dispose of the shares held by
this trust and, accordingly, may be deemed to be the beneficial owner of
such shares. Mr. Malouf, however, disclaims beneficial ownership with
respect to such shares. In addition, Daniel P. Robinowitz is the father of
the beneficiary of this trust. Mr. Robinowitz also disclaims beneficial
ownership with respect to such shares.
(3) Irving C. Deal may be deemed to beneficially own the shares held by
Normandy, Inc. by virtue of being the Chairman of the Board and Chief
Executive Officer of Normandy, Inc. Mr. Deal is the spouse of Patricia
Deal. Mr. Deal disclaims beneficial ownership of the shares held by his
wife.
(4) Patricia Deal is the spouse of Irving C. Deal. Ms. Deal disclaims
beneficial ownership of any shares that may be deemed to be beneficially
owned by her husband.
(5) These shares represent (a) the shares held by Windsor Woodmont, LLC, which
Mr. Robinowitz may be deemed to beneficially own by virtue of being a
manager of Windsor Woodmont, LLC having the power and authority to vote
such shares, (b) 26,693 shares held by the DPR 1992 Trust, which Mr.
Robinowitz may be deemed to beneficially own by virtue of being the trustee
and the beneficiary under such trust, and (c) 12,329 shares held by Mr.
Robinowitz individually.
(6) These shares represent (a) the shares owned by Normandy, Inc., which Mr.
Deal may be deemed to beneficially own by virtue of being the Chairman of
the Board and Chief Executive Officer of Normandy, Inc., and (b) the shares
owned by Windsor Woodmont, LLC, which Mr. Deal may be deemed to
beneficially own by virtue of being a manager of Windsor Woodmont, LLC
having the power and authority to vote such shares.
(7) These shares represent shares held by Windsor Woodmont, LLC for the benefit
of this individual who holds options, granted by Windsor Woodmont, LLC, to
acquire our common stock. Each such individual may be deemed to
beneficially own such shares since the options are currently exercisable.
(8) These shares include 15,000 shares held by Windsor Woodmont, LLC for the
benefit of Mr. Rose who holds options, granted by Windsor Woodmont, LLC, to
acquire those shares. Mr. Rose may be deemed to beneficially own such
shares since the options are currently exercisable.
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(9) These shares represent shares owned by the APR 21st Century Trust and the
AMR 21st Century Trust, which Mr. Malouf may be deemed to beneficially own
by virtue of being the trustee of such trusts having the power and
authority to vote and to dispose of such shares. Mr. Malouf, however,
disclaims beneficial ownership with respect to such shares.
(10) These shares represent shares underlying 80,031 warrants issued to U.S.
Bancorp Libra as placement agent for the unit offering, and 42,329 warrants
purchased by U.S. Bancorp Investments, Inc. as part of the unit offering.
(11) These shares represent shares underlying 152,521 common stock purchase
warrants contained in units purchased in the unit offering.
(12) These shares represent shares underlying 188,509 common stock purchase
warrants purchased in conjunction with shares of our series B preferred
stock.
(13) These shares represent shares underlying the warrants held of record by
U.S. Bancorp Investments, Inc. which Mr. Ravich may be deemed to
beneficially own by virtue of his being the founder, Chairman and Chief
Executive Officer of that entity, and the shares underlying warrants held
by the Ravich Revocable Trust of 1989 and the Ravich Family Foundation,
which Mr. Ravich may be deemed to beneficially own by virtue of his having
the power and authority to vote and to dispose of such shares.
DESCRIPTION OF OTHER INDEBTEDNESS
Second Mortgage Notes
General. In March 2000, we entered into a subordinated loan agreement with
Hyatt Gaming pursuant to which we issued second mortgage notes to Hyatt Gaming
in an aggregate amount of $7.5 million. After using approximately $1.6 million
of the proceeds from the issuance of the second mortgage notes to pay off a
portion of certain liens and expenses of the unit offering, we deposited
approximately $5.2 million in a construction disbursement account and
approximately $0.7 million in a completion reserve account which are two of the
six cash collateral accounts governed by the cash collateral and disbursement
agreement entered into by us, Hyatt Gaming, the disbursement agent and the
trustee under the indenture governing the notes and certain other parties
thereto.
Security. The second mortgage notes issued to Hyatt Gaming are secured by a
first priority lien on the cash in the construction disbursement and completion
reserve accounts in which approximately $5.9 million of the Hyatt Gaming loan
proceeds have been deposited, and by a second priority lien on the assets
securing the notes.
Disbursement of Funds. The disbursement agent will disburse funds from the
Hyatt Gaming construction disbursement account or the Hyatt Gaming completion
reserve account at the same time it disburses funds from the construction
disbursement account or the completion reserve account, as applicable, only upon
the satisfaction of the disbursement conditions set forth in the cash collateral
and disbursement agreement. For every disbursement request made by us in
accordance with the cash collateral and disbursement agreement to fund the
development, construction and opening of the casino, 8.99% of such proceeds will
be disbursed from the Hyatt Gaming construction disbursement account or from the
Hyatt Gaming completion reserve account, as applicable, and 91.01% of such
proceeds will be disbursed from the construction disbursement account or from
the completion reserve account, as applicable.
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Warrants. We have granted the holders of the second mortgage notes warrants
to purchase 1.977% of our common stock, on a fully-diluted basis. The warrants
have the same terms as the warrants issued in the unit offering.
Interest Rates; Fees; Repayments. The second mortgage notes bear interest
at a rate equal to 15.5%. Any interest which comes due prior to the date on
which our casino opens will be deferred and accrued and, on the date the casino
opens, will be added to the principal amount owing on the second mortgage notes.
Thereafter, interest will accrue and be paid in cash on a semi-annual basis, in
arrears, on the business day immediately following the semi-annual interest
payment dates for the notes.
All principal amounts advanced to us under the second mortgage notes will
be due and payable on March 15, 2010. In addition, if we are permitted to make a
restricted payment as a result of an event of loss, asset sale, change of
control, excess cash flow or otherwise under the terms of the indenture
governing the notes, we will be required to repay the principal amount of second
mortgage notes in an amount equal to the maximum amount available to make such
restricted payment. The second mortgage notes are pre-payable at 100% of
aggregate principal amount at any time to the extent permitted by the restricted
payment covenant contained in the indenture governing the notes.
Ranking. The second mortgage notes are general obligations secured by a
first priority lien on the cash held in the Hyatt Gaming construction
disbursement account, the Hyatt Gaming completion reserve account and the
advance disbursement account with respect to the portion of the account funded
from the Hyatt Gaming construction disbursement account, and by a second
mortgage on the assets securing the notes. Other than with respect to the cash
held in the Hyatt Gaming construction disbursement account and the Hyatt Gaming
completion reserve account, the second mortgage notes are subordinated in right
of payment to the notes.
Covenants. The terms of our subordinated loan agreement contain covenants,
substantially the same as the covenants contained in the indenture governing the
notes. In addition, the subordinated loan agreement contains covenants
prohibiting any amendment or modification to the notes issued under the
indenture that would increase principal or interest, extend the maturity or that
relate to the second mortgage notes or the casino management agreement and would
materially and adversely affect Hyatt Gaming. Subject to certain limited
exceptions, the subordinated loan agreement also prohibits developer fees from
being paid by us or any of our affiliates prior to the repayment in full of the
second mortgage notes.
Events of Default. The terms of our subordinated loan agreement contain
events of default after the expiration of applicable grace periods, including
failure to make payments on the loans advanced to us, breach of covenants,
breach of representations and warranties, invalidity of the subordinated loan
agreement governing the second mortgage notes and related documents, cross
default under the indenture governing the notes, a change of control, certain
events of liquidation, moratorium, insolvency, bankruptcy or similar events,
enforcement of security, certain litigation or other proceedings and certain
events relating to a change of control.
Intercreditor Subordination and Collateral Agreement. In March 2000, we
entered into an intercreditor subordination and collateral agreement with Hyatt
Gaming and the trustee under the indenture governing the notes, on behalf of the
holders of notes. Under this agreement, Hyatt Gaming agrees that, subject to its
first priority lien on the proceeds from the second mortgage notes deposited in
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the Hyatt Gaming construction disbursement account, the Hyatt Gaming completion
reserve account and the advance disbursement account, all of our payment
obligations to Hyatt Gaming under the second mortgage notes are subordinate and
junior in right of payment to the prior indefeasible payment in full in cash of
all senior debt obligations arising under the notes, the indenture governing the
notes, the collateral documents entered into pursuant to the indenture and all
other related agreements. Accordingly, in the event of any distribution of all
or any part of our assets, other than the proceeds from the second mortgage
notes deposited in the Hyatt Gaming construction disbursement account, the Hyatt
Gaming completion reserve account and the advance disbursement account, or the
proceeds from any asset sale (including any assets securing the second mortgage
notes) to our creditors as a result of any dissolution, liquidation, voluntary
or involuntary bankruptcy proceeding or similar proceeding or event relating to
us, the holders of notes will be entitled to receive payment in full in cash of
all senior debt obligations under the notes before Hyatt Gaming is entitled to
receive any payment on its second mortgage notes, other than with respect to its
first priority lien on the proceeds from the second mortgage notes deposited in
the Hyatt Gaming construction disbursement account, the Hyatt Gaming completion
reserve account and the advance disbursement account.
Any lien, security interest, encumbrance, charge or claim of Hyatt Gaming
on any of our assets, property, proceeds or revenues, other than its first
priority lien on the loan proceeds deposited in the Hyatt Gaming construction
disbursement account, the Hyatt Gaming completion reserve account and the
advance disbursement account, are subordinated and inferior in every respect to
all liens, security interests, or encumbrances now or hereafter granted to the
trustee by us or by law, irrespective of:
o the time, manner or order of attachment or perfection of security
interest or liens granted by us;
o the time, manner or order of filing of financing statements or other
instruments,;
o whether any collateral is in the possession of the trustee or Hyatt
Gaming or any of their respective agents or representatives; or
o any provision of the Uniform Commercial Code or any other applicable
law.
In the event that any default or event of default occurs and is continuing
with respect to any senior debt obligations under the notes or if any payment of
the second mortgage notes would create a default or event of default, unless and
until all of the senior debt obligations under the notes have been indefeasibly
paid in full in cash, the right of Hyatt Gaming to receive any payments or other
distributions with respect to the second mortgage notes will be suspended during
the continuance of such default or event of default. In the event of a default
under the second mortgage notes, Hyatt Gaming cannot initiate any action to
foreclose or enforce its rights against or realize upon the collateral, unless
such default relates to the failure to pay any principal amount due and payable
with respect to the second mortgage notes until the first to occur of (1) such
Hyatt Gaming default exists uncured for a period of 360 consecutive days or (2)
the trustee or any other party (other than Hyatt Gaming and its affiliates)
initiates a bankruptcy, foreclosure or other similar proceeding or seeks to
enforce its rights against any collateral (the earlier of each such period
described in (1) or (2), we refer to as the "hold-off period"). In any exercise
of rights after the hold-off period, Hyatt Gaming may act to protect its
interest as a junior secured creditor. The foregoing shall not limit Hyatt
Gaming's right to seek injunctive relief or specific performance of covenants
set forth in the subordinated loan agreement to prevent any payment to us or our
affiliates or between us and our affiliates, or to participate in any
foreclosure or bankruptcy proceedings initiated by the trustee or third parties.
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We have agreed with Hyatt Gaming that the terms of the second mortgage
notes cannot be amended, altered or modified in a manner that adversely affects
the notes without the prior written consent of the holders of a majority of the
notes then outstanding.
Furniture, Fixtures and Equipment Financing
We intend to obtain financing for furniture, fixtures and equipment for our
casino in the amount of $20.8 million. This indebtedness will be used solely for
the financing of the acquisition of furniture, fixtures and equipment to be used
in the ordinary course of our casino business. The financing will be secured by
such furniture, fixtures and equipment.
Special Improvement District Bonds
The Black Hawk Business Improvement District may, if we elect to do so,
issue special improvements district bonds in the amount of $3.0 million;
however, we will be responsible for repayment of all amounts due under these
bonds by way of special assessments on our property. The bond proceeds will be
used by the District to finance surface, underground and utility improvements
and improve traffic signals and other infrastructure projects that benefit the
property on which our casino will be build (we may elect to enter into an
agreement with the District under which we construct the improvements and the
District reimburses us for the cost of same). The special improvements district
bonds contain a lien provision that attaches to all of our real property in
Black Hawk until the bonds are fully paid.
DESCRIPTION OF CAPITAL STOCK
The following is a summary of our capital stock and certain provisions of
our amended and restated articles of incorporation and amended and restated
bylaws and does not purport to be complete. It is subject to and qualified in
its entirety by reference to applicable Colorado law and to our articles of
incorporation and bylaws. Copies of our articles of incorporation and bylaws
have been filed as exhibits to the registration statement of which this
prospectus is a part.
General
Our authorized stock consists of 10,000,000 shares of common stock, $0.01
par value per share, and 1,000,000 shares of preferred stock, $0.01 par value
per share, of which 1,000,000 shares of common stock, 29,000 shares of series A
preferred stock and 30,000 shares of series B preferred stock are outstanding as
of the date of this prospectus. All outstanding shares of common stock and
preferred stock are fully paid and non-assessable. Our board of directors may
classify or reclassify any unissued shares of capital stock by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications or terms or conditions of redemption of such stock.
Common Stock
Voting Rights. Holders of our common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of shareholders.
Unless otherwise required by Colorado law, holders of our common stock will vote
as a single class with respect to all matters submitted to a vote. Holders of
our common stock are not entitled to cumulative voting rights with respect to
the election of directors and, as a consequence, minority shareholders will not
be able to elect directors on the basis of their votes alone.
Dividends. Subject to preferences that may be applicable to any shares of
preferred stock issued in the future, holders of our common stock are entitled
to receive dividends ratably as may be declared by our board of directors out of
funds legally available for payment. We do not intend to pay a dividend on
shares of our common stock in the future.
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Liquidation. In the event of our liquidation, dissolution or winding-up,
holders of shares of common stock are entitled to share ratably in all assets
remaining after the payment of liabilities and after provision has been made for
each class of stock, if any, having preference over the common stock.
Preemptive, Conversion and Other Subscription Rights. Holders of common
stock do not have any rights to subscribe for our shares or rights to convert
their common stock into any other securities. There are no redemption or sinking
fund provisions applicable to our common stock.
Mandatory Sale Provisions. Colorado law provides that any transfer of
shares must be approved by Colorado gaming authorities and any transferee must
obtain approval to hold an ownership interest in a gaming license in Colorado.
Any transfer in violation of such law is void unless we are no longer subject to
such law or the Colorado Gaming Commission waives such noncompliance. If the
Colorado Gaming Commission determines that a shareholder is unsuitable to own
our securities, then we may buy, and the shareholder is required to sell, such
shareholder's shares.
Issuance/Redemption. Under our articles of incorporation, we may not issue
any voting securities or other voting interests, including common stock, except
in accordance with the provisions of the amendment to the Colorado State
Constitution and the Colorado Limited Gaming Act and the regulations promulgated
thereunder. The issuance of any voting securities or other voting interests,
including common stock, in violation of such laws will be void and such voting
securities or other voting interests, including the common stock, will be deemed
not to be issued and outstanding until:
o we cease to be subject to the jurisdiction of the Colorado Gaming
Commission; or
o the Colorado Gaming Commission, by affirmative action, validates such
issuance or waives any defect in issuance.
If we reasonably believe, or if the trustee under the indenture governing
the notes or the holders of a majority of the notes believe, that a suitability
problem may exist with the Colorado Gaming Commission or any other gaming
regulatory agency in connection with a holder of voting securities or voting
interests issued by us, we will notify that holder within five days of either
determining that a suitability problem does exist or after written notification
by the trustee or note holders. We will purchase the subject securities no fewer
than 30 days nor more than 35 days after receipt by the holder of this call
notice from us. We will purchase the subject securities prior to the expiration
of the call period in an amount equal to the lesser of fair market value or book
value in cash. Until the subject securities are purchased by us:
o we will not be required or permitted to pay any dividend or interest
with respect to the subject securities;
o the holder of the subject securities or other voting interests issued
by us, and the subject securities, shall not for any purposes be
included in the voting securities or other voting interests where they
normally would be entitled to vote; and
o we will not pay remuneration in any form to the holder of the subject
securities, except in exchange for the subject securities.
If the holder disagrees that a suitability problem exists, it can request a
formal suitability determination by the Colorado Gaming Division. If the holder
chooses this route, it must:
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o notify us in writing within 5 days of receiving the call notice from
us that it wishes to request a formal suitability determination;
o file within 30 days after receiving the call notice a formal request
for a suitability determination with the Colorado Gaming Division,
with a copy to us;
o pay for all costs, fees, and investigative expenses associated with
the suitability determination as they are incurred; and
o complete and provide to the Colorado Gaming Division, with copies to
us, all paperwork and other information required.
If the holder chooses to request a formal suitability determination in
order to repurchase the subject securities from us, we will acquire the subject
securities by issuing the holder a subordinated note equal to the price of the
subject securities as determined under these provisions. The subordinated note
may not be assigned or encumbered and will be canceled if the Colorado Gaming
Commission and the Colorado Gaming Division determine that the holder is
suitable and we will return to the holder the subject securities, plus all
accrued dividends, if any.
The holder may also sell to a qualified purchaser the subject securities
upon receiving a notice of our intention to purchase the subject securities in
accordance with the transfer restrictions stated in this prospectus, including
the applicable Colorado statutes.
Restrictions on Transfer. Under our articles of incorporation, shareholders
are prohibited from transferring any of the shares unless and until all
necessary approvals for such transfer, if any, by the Colorado Gaming Commission
and the Director of the Colorado Gaming Division have been obtained. Our
articles of incorporation provide that we may require any shareholder proposing
to transfer shares to provide evidence satisfactory to us that either no such
approvals are required for the proposed transfer or any such approvals have been
obtained.
Preferred Stock
Our articles of incorporation authorize the issuance of 1,000,000 shares of
preferred stock with such designations, rights and preferences as may be
determined from time to time by our board of directors.
Series A Preferred Stock.
The holders of our series A preferred stock have no voting rights but have
the approval rights set forth below. Our series A preferred stock has a
liquidation preference of $100 per share. In the event of our liquidation,
dissolution or winding-up, holders of series A preferred stock are entitled to
receive the liquidation preference, plus all accrued and unpaid dividends
thereon, if any, prior to any payment being made on our common stock, but after
any payment being made on our series B preferred stock. Our series A preferred
stock is non-convertible, and will accrue a cumulative, non-compounding dividend
at the rate of 11% per annum; provided, that in the event the series A preferred
stock is not redeemed within three years from the date of issuance, the dividend
will be compounding as of the date of issuance of such series A preferred stock.
The holders of our series A preferred stock are entitled to receive such
dividends prior to any declaration or payment of any cash dividend on our common
stock, but after any declaration or payment of any cash dividend on our series B
preferred stock.
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So long as any shares of our series A preferred stock are outstanding, we
cannot, without the written approval (which approval will not be unreasonably
withheld) of by the holders of two-thirds of the shares of series A preferred
stock then outstanding, voting as a separate class:
(1) increase the total number of authorized shares of series A preferred
stock; or
(2) authorize or issue any other equity security having a preference over,
or being on parity with, the series A preferred stock with respect to
dividend rights, rights or redemption or rights upon our liquidation,
dissolution or winding up.
Holders of our series A preferred stock may redeem their shares at a price
per share equal to their liquidation preference plus accrued and unpaid
dividends thereon at any time after the later of (1) the one year anniversary of
the date the notes are paid in full (whether at maturity or pursuant to
redemption or repurchase), and (2) the one year anniversary of the date the
second mortgage notes are paid in full (whether at maturity or pursuant to
redemption or repurchase). Notwithstanding the foregoing, holders of our series
A preferred stock may redeem their shares at any time after the one year
anniversary of the maturity date of the second mortgage notes.
Series B Preferred Stock.
We have issued 30,000 shares of our series B preferred stock, together with
warrants to purchase 15% of our common stock, on a fully-diluted basis on the
date of exercise of such warrants, for an aggregate cash purchase price of $3.0
million. An affiliate of the placement agent for our unit offering purchased
6,000 shares of series B preferred stock and 51,412 warrants. The series B
preferred stock has a liquidation preference of $100 per share. The holders of
our series B preferred stock have no voting rights, but have the approval rights
set forth below. In addition, Jess Ravich, the Chairman and Chief Executive
Officer of U.S. Bancorp Libra, in his capacity as trustee for the Ravich
Revocable Trust of 1989, has the right to designate one member to our board of
directors. The Ravich Revocable Trust of 1989 is an affiliate of U.S. Bancorp
Libra and is a holder of our series B preferred stock. The additional member
initially is Jess Ravich. Our existing shareholders have agreed to vote their
shares of common stock in favor of any board member nominated by the Ravich
Revocable Trust of 1989. The warrants issued with our series B preferred stock
have an exercise price of $0.01 per share, and have substantially similar terms
as the warrants issued in the unit offering.
In the event of our liquidation, dissolution or winding up, holders of our
series B preferred stock are entitled to receive the liquidation preference,
plus all accrued and unpaid dividends thereon, if any, prior to any payment
being made on any other class of our preferred stock or our common stock. Our
series B preferred stock is non-convertible, and dividends accrue on a
cumulative basis, compounding quarterly at a rate of 7.0% per annum. The holders
of our series B preferred stock are entitled to receive such dividends prior and
in preference to any declaration or payment of any cash dividend on any other
class of our preferred stock or our common stock.
The issuance of other equity securities ranking senior to or equal with the
series B preferred stock, or the redemption or repurchase of any of our equity
securities ranking junior or equal to the series B preferred stock, must be
approved by the holders of a majority of the series B preferred stock then
outstanding.
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So long as any shares of our series B preferred stock are outstanding, we
cannot, without first obtaining the approval (which approval will not be
unreasonably withheld), by vote or written consent, of the holders of a majority
of the then outstanding shares of our series B preferred stock voting as a
separate class:
(1) increase the total number of authorized shares of series B preferred
stock;
(2) authorize or issue any other equity security (including debt
securities with equity features, including notes convertible into or
exchangeable for equity, issued in connection with equity, or
containing profit participation features, as well as capital
appreciation or profit participation rights) having a preference over,
or being on parity with, the series B preferred stock with respect to
dividend rights, rights of redemption or rights upon our liquidation,
dissolution or winding up;
(3) redeem, purchase or otherwise acquire (or pay into or set aside for a
sinking fund for such purpose) any share or shares of our common or
preferred equity interests (other than (i) the series B preferred
stock and (ii) mandatory redemptions or redemptions pursuant to
applicable gaming laws (to the extent the holder is paid by a
subordinated note rather than cash));
(4) declare or pay any dividends on or declare or make any other
distributions, direct or indirect, on any shares of our common or
preferred stock (other than a dividend or distribution on our series B
preferred stock), or set apart any sum for any such purpose;
(5) amend or repeal our articles of incorporation or our bylaws;
(6) enter into an agreement relating to a merger, acquisition, joint
venture, consolidation, other business combination or the sale, lease
or other disposition of any of our material assets outside the
ordinary course of business;
(7) enter into transactions with any of our officers, directors or
stockholders, or any of their respective family members or affiliates;
(8) enter into the ownership, management or operation of a new line of
business;
(9) approve our liquidation, dissolution, recapitalization, reorganization
or winding up;
(10) make or permit to exist any Investment other than (a) Investments in
short-term obligations issued by, or guaranteed by, the United States
government, (b) Investments in negotiable certificates of deposit,
bankers acceptances or money market securities issued by any bank or
branch of a bank having capital and surplus of at least $100,000,000
in the aggregate at all times, or (c) Investments in commercial paper
rated P1 or A1 by Moody's Investors Services, Inc. or Standard &
Poor's Corporation; the term "Investment," as used herein, meaning (i)
any direct or indirect purchase or other acquisition of any notes,
obligations, instruments, stock, securities or ownership interest of
any person and (ii) any capital contribution to any person;
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(11) make any loans or advances to, or guarantees for the benefit of, any
person, other than travel advances and similar loans to employees not
to exceed $50,000 at any one time in the aggregate or as permitted
pursuant to the indenture governing the notes;
(12) change our independent public accountants, unless such new independent
public accounting firm is a "Big 5" firm; and
(13) permit any of our subsidiaries, whether now or hereafter existing, to
take any of the foregoing actions.
We may redeem, from any legally available source of funds, our series B
preferred stock at any time, subject to prior repayment of the second mortgage
notes. We will effect such redemption by paying in cash in exchange for the
series B preferred stock a sum equal to the liquidation preference for each
share of series B preferred stock, plus all accrued or accumulated but unpaid
dividends on such shares at the time of payment. Any such redemption will be
made on a pro rata basis among the holders of our series B preferred stock in
proportion to the number of shares of series B preferred stock then held by such
holders.
We are obligated to redeem, from any legally available source of funds, the
series B preferred stock on March 15, 2015. Furthermore, we are obligated to
redeem, from any legally available source of funds, the series B preferred stock
in cash contemporaneously with the consummation of an initial public offering of
our equity, the sale of all or substantially all of our assets or equity or any
other transaction or series of related transactions resulting in a change of
control of us. We will effect such redemptions by paying in cash in exchange for
the series B preferred stock a sum equal to the liquidation preference for each
share of series B preferred stock, plus all accrued or accumulated but unpaid
dividends on such shares at the time of payment.
The holders of our series B preferred stock are entitled to customary
inspection rights. In addition, we will provide the holders of series B
preferred stock with annual and quarterly financial reports, as well as
additional reports or financial information made available by us to the holders
of the notes or of any other class of our equity securities.
Since the holders of our series B preferred stock have certain approval
rights and are entitled to nominate one member of our board of directors, they
may be required to undergo some level of investigation and licensing by the
Colorado Gaming Commission.
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Warrants
The following warrants to purchase our common stock are currently
outstanding.
Number of
Shares Percentage on a
Warrant Holder IssuableUpon Fully-Diluted
Exercise Basis
------------------------------------------- --------------- ------------------
Holders of the notes (in the aggregate) 342,744 20.000%
Holders of our series B preferred stock 257,058 15.000%
(in the aggregate)
Placement agent 80,031 4.670%
Hyatt Gamin 33,887 1.977%
------ -----
Total 713,720 41.647%
Consequently, the amount of our common stock that will be outstanding on a
fully-diluted basis will be 1,713,720 shares.
DESCRIPTION OF UNITS
The units are represented by a unit certificate by and among us, the
trustee under the indenture governing the notes, the warrant agent and SunTrust
Bank, as unit agent. Each unit consists of $1,000 principal amount of notes and
one warrant initially entitling the holder thereof to purchase 3.42744 shares of
our common stock, subject to adjustment. The notes and warrants are separately
transferable.
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DESCRIPTION OF THE NOTES
The old notes were, and the new notes will be, issued under the indenture,
dated as of March 14, 2000 between Windsor Woodmont Black Hawk Resort Corp., as
issuer, and SunTrust Bank, as trustee. The terms of the notes include those
stated in the indenture and those made part of the indenture by reference to the
Trust Indenture Act of 1939, as amended. The following summary of the indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act and to all of the provisions
of the indenture, including the definitions of terms used in the indenture and
those terms made a part of the indenture by reference to the Trust Indenture
Act. The notes are senior secured obligations of the Company. The Collateral
Documents referred to under the caption "-- Security" define the terms of the
collateral that will secure the notes.
You can find the definitions of certain terms used in this description of
the notes under the caption "Certain Definitions." In this description, the word
"Company" refers only to Windsor Woodmont Black Hawk Resort Corp. and not to
Windsor Woodmont LLC or any of its direct or indirect subsidiaries.
The following description is a summary of the material provisions of the
indenture, the Registration Rights Agreement and the Collateral Documents. It
does not restate any of those agreements in its entirety. We urge you to read
the indenture, the Registration Rights Agreement and the Collateral Documents
because they, and not this description, define your rights as holders of the
notes. Copies of the indenture, the Registration Rights Agreement and the
Collateral Documents will be made available to holders of old notes upon
request. Certain defined terms used in this description but not defined below
under the caption "-- Certain Definitions" have the meanings assigned to them in
the indenture.
Brief Description of the Notes
The notes:
o are senior secured obligations of the Company;
o are secured by a first priority lien, subject to permitted liens, on
substantially all of the Company's existing and future assets other
than (1) FF&E acquired, leased or refinanced with FF&E Financing, (2)
proceeds from the Second Mortgage Notes placed in the Hyatt Gaming
Cash Collateral and Disbursement Accounts to be disbursed in
accordance with the Cash Collateral and Disbursement Agreement (such
proceeds shall be secured by a second priority lien), and (3) assets
of our future unrestricted subsidiaries;
o are secured by the pledge of shares Capital Stock held by the
Affiliates of the Sponsor, representing approximately 10% of our
capital stock on a fully diluted basis;
o rank pari passu (on parity) in right of payment with any existing and
future unsubordinated Indebtedness of the Company; and
o rank senior in right of payment to all subordinated Indebtedness of
the Company.
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Principal, Maturity and Interest
The Company may issue up to $35.0 million aggregate principal amount of
additional notes under the indenture governing the notes issued hereby, from
time to time as follows:
o up to $5.0 million of additional notes may be issued to the Ravich
Revocable Trust of 1989 or Affiliates of the foregoing solely to
finance the completion of the development, construction and initial
equipment of the Black Hawk Casino prior to the Operating of the Black
Hawk Casino in accordance with clause (15) of the definition of
Permitted Debt in the covenant "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
o up to $30.0 million of additional notes (the "Hotel Additional Notes")
may be issued solely for the purpose of financing the construction of
a hotel, parking structure and related facilities at the Black Hawk
Casino or on the property owned by the Company in Black Hawk, Colorado
(collectively, the "Hotel Project") in accordance with the covenant
"--Incurrence of Indebtedness and Issuance of Preferred Stock."
Any offering of additional notes will be subject to the covenant described
below under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock." The old notes, the new notes and any additional
notes subsequently issued under the indenture will be treated as a single class
for all purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. The Company will issue notes in
denominations of $1,000 and integral multiples of $1,000. The notes will mature
on March 15, 2005. Interest on the notes will accrue at the rate of 13% per
annum and will be payable semi-annually in arrears on March 15 and September 15
of each year, commencing on September 15, 2000, to Holders of record on the
immediately preceding March 1 and September 1, respectively. Interest on the
notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of original issuance. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Any reference in this prospectus to "accrued and unpaid interest" on the
notes includes the amount of interest and Liquidated Damages, if any, due and
payable thereon.
Principal of, premium, if any, interest and Liquidated Damages, if any, on
the notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages, if any, may be made by
check mailed to the Holders of notes at their respective addresses set forth in
the register of Holders of notes; provided that all payments with respect to
notes the Holders of which have given wire transfer instructions to the Company
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose.
Security
The notes will be secured by a first lien on the Collateral owned by the
Company or any of its Restricted Subsidiaries, whether now owned or hereafter
acquired. The Collateral includes, without limitation and subject to Permitted
Liens:
(1) a pledge of the Government Securities and any funds deposited and
held in the Interest Reserve Account until such time as such funds are
disbursed in accordance with the terms of the Cash Collateral and
Disbursement Agreement;
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(2) a pledge of the funds held in the Construction Disbursement
Account, including, without limitation, approximately $53.3 million of the
net proceeds of the unit offering, and a pledge of the funds held in the
Completion Reserve Account, including, without limitation, approximately
$6.5 million of the net proceeds of the unit offering, which proceeds have
been invested in Investment Grade Securities and held in such accounts
until disbursed in accordance with the terms of the Cash Collateral and
Disbursement Agreement;
(3) the fee simple interest in all of the real property held by the
Company, additions and improvements and component parts related to it,
issues and profits from it, and, except as set forth below, furniture,
fixtures, machinery and equipment forming a part of it or used in
connection with it;
(4) all of the Company's and its Restricted Subsidiaries' accounts
receivable, general intangibles, inventory and other personal property
other than FF&E acquired, leased or refinanced with FF&E financing; and
(5) to the extent permitted by law, all of the Company's right, title
and interest in and to certain construction contracts, operating
agreements, the Management Agreement, other agreements, licenses and
permits entered into by, or granted to, the Company and its Restricted
Subsidiaries in connection with the development, construction, ownership
and operation of the Black Hawk Casino.
Such liens and security interests may be subordinate or junior to mechanic's
liens which, under applicable Colorado law, may have priority over the lien on
the real property comprising the Black Hawk Casino in favor of the Trustee and
additions, improvements and component parts relating thereto. The Company will
not be obtaining title insurance to insure against losses from the enforcement
of such mechanic's liens. See "Risk Factors -- Certain parties who provide
services or materials in connection with our casino may have a lien on the
project with priority over the liens to secure the notes." In addition, the
Holders of the notes will not have a lien on FF&E acquired with or leased
through FF&E Financing or on any Gaming Licenses or Liquor Licenses.
The Second Mortgage Notes issued to Hyatt Gaming are secured by a second
lien on the Collateral owned by the Company or any of its Restricted
Subsidiaries, whether now owned or hereafter acquired, and a first priority lien
on the proceeds from the issuance of the Second Mortgage Notes placed in the
Hyatt Gaming Cash Collateral and Disbursement Accounts to be disbursed in
accordance with the Cash Collateral and Disbursement Agreement. The notes will
be secured by a second lien placed on the proceeds in the Hyatt Gaming Cash
Collateral and Disbursement Accounts.
The City Improvement Bonds used to finance improvements on the real
property owned by the Company, such as, by way of example, sidewalks, curbing,
sewer lines, utilities and lamp posts, will be secured by a first priority lien
on all of the Company's real property in Black Hawk.
The indenture contains a requirement that, to the extent permitted under
applicable law, the stock of all current and future Restricted Subsidiaries of
the Company and the assets of its current and future Restricted Subsidiaries
must be pledged to secure the debt evidenced by the notes.
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If an Event of Default occurs and is continuing, the Trustee, on behalf of
the Holders, in addition to any rights or remedies available to it under the
indenture and the Collateral Documents, may take such action as it deems
advisable to protect and enforce its rights in the Collateral, including the
institution of sale or foreclosure proceedings. The proceeds received by the
Trustee from any such sale or foreclosure will be applied by the Trustee first
to pay the expenses of such sale or foreclosure and fees or any other amounts
then payable to the Trustee under the indenture or to the Disbursement Agent
under the Cash Collateral and Disbursement Agreement, and thereafter to pay
amounts due and payable with respect to the notes.
The proceeds of any sale of the Collateral pursuant to the indenture and
the related Collateral Documents following an Event of Default may not be
sufficient to satisfy payments due on the notes. In addition, the ability of the
Holders to realize upon the Collateral may be limited pursuant to gaming laws,
in the event of a bankruptcy and pursuant to other applicable laws, including
securities laws, all as described below. See "-- Remedies Upon Default Under
Notes," "Risk Factors -- If we become bankrupt, you may be unable to collect the
full value of your notes by foreclosing upon collateral" and "Risk Factors --
Federal and state statutes allow courts, under special circumstances to void
transfers or objections."
Gaming Law Limitations on Foreclosure
The Trustee's ability to foreclose upon the Collateral will be limited by
relevant Colorado gaming laws, which generally require that persons who own or
operate a casino or purchase, possess or sell gaming equipment hold a valid
gaming license. No person can hold a gaming license in the State of Colorado
unless the person is found qualified or suitable by the relevant Gaming
Authorities. This prohibition may restrict the Trustee's ability to enforce
certain provisions contained in, or take certain actions permitted by, the
Collateral Documents, which the Trustee would otherwise be authorized to do by
serving as the Company's attorney-in-fact or otherwise, as provided in the
Collateral Documents. In addition, in order for the Trustee or a purchaser at or
after foreclosure to be found qualified or suitable, such Gaming Authorities
would have discretionary authority to require the Trustee, any or all of the
Holders and any such purchaser to file applications, be investigated and be
found qualified or suitable as an owner or operator of gaming establishments.
The applicant for qualification, a finding of suitability or licensing must pay
filing fees and all costs of any such investigation. If the Trustee is unable or
chooses not to qualify, be found suitable, or be licensed to own, operate or
sell such assets, it would have to retain or sell to an entity licensed to
operate or sell such assets. In any case, only an operator licensed by the
relevant Gaming Authority may operate a Gaming Facility and such operator must
have a right to possession of the premises. Otherwise, the gaming activities
must cease until the operator is appropriately licensed. In addition, in any
foreclosure sale or subsequent resale by the Trustee, licensing requirements
under the relevant gaming laws may limit the number of potential bidders and may
delay any sale, either of which events would have an adverse effect on the sale
price of the Collateral. Therefore, the practical value of realizing on the
Collateral may, without the appropriate approvals, be limited.
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Bankruptcy Limitations on Foreclosure
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or
against the Company prior to the Trustee having repossessed and disposed of the
Collateral. Under the Bankruptcy Code, a secured creditor such as the Trustee is
prohibited by virtue of the automatic stay from repossessing its security from a
debtor in a bankruptcy case, or from disposing of security repossessed from such
debtor, without bankruptcy court approval. Moreover, the Bankruptcy Code permits
the debtor to continue to retain and to use collateral, including making asset
sales under certain circumstances (and the proceeds, products, offspring, rents
or profits of such collateral) even though the debtor is in default under the
applicable debt instruments, provided that the secured creditor is given
"adequate protection." The meaning of the term "adequate protection" may vary
according to circumstances, but it is intended in general to protect the value
as of the date the bankruptcy case is commenced of the secured creditor's
interest in the collateral and may include, if approved by the court, cash
payments or the granting of additional security for any diminution in the value
of the collateral as a result of the stay of repossession or the disposition or
any use of the collateral by the debtor during the pendency of the bankruptcy
case. The court has broad discretionary powers in all these matters, including
the valuation of the Collateral or other collateral that may be substituted
therefor. In addition, since the enforcement of the Lien of the Trustee in cash,
deposit accounts and cash equivalents may be limited in a bankruptcy proceeding,
the Holders may not have any consent rights with respect to the use of those
funds by the Company or any of its subsidiaries during the pendency of the
proceeding. In view of these considerations, it is impossible to predict how
long payments under the notes could be delayed following commencement of a
bankruptcy case, whether the terms of the notes could be altered in a bankruptcy
case, whether or when the Trustee could repossess or dispose of the Collateral
or whether or to what extent Holders of the notes would be compensated for any
delay in payment or loss of value of the Collateral.
Optional Redemption
At any time prior to March 15, 2002 the Company may redeem up to 35% of the
aggregate principal amount of notes at a redemption price of 113% of the
principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the redemption date, with the net proceeds of an Equity
Offering; provided that;
o at least 65% of the aggregate principal amount of notes issued under
the indenture remains outstanding immediately after the occurrence of
each such redemption excluding notes held by the Company and its
Subsidiaries; and
o redemption must occur within 60 days of the date of the closing of
such Equity Offering.
On or after March 15, 2002, the Company may redeem all or part of the notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest to the applicable redemption date, if redeemed during the
twelve-month period beginning on March 15 of the years indicated below:
Year Percentage
---- ----------
2002 113.000%
2003 108.666%
2004 104.333%
2005 (maturity) 100.000%
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Gaming Redemption
Notwithstanding any other provision hereof, if any Gaming Authority
requires that a Holder or beneficial owner of notes must be licensed, qualified
or found suitable under any applicable gaming law and such Holder or beneficial
owner fails to apply for a license, qualification or finding of suitability
within 30 days after being requested to do so by such Gaming Authority (or such
lesser period that may be required by such Gaming Authority), or if such Holder
or such beneficial owner is notified by such Gaming Authority that such Holder
or beneficial owner will not be so licensed, qualified or found suitable, the
Company will have the right, at its option:
(1) to require such Holder or beneficial owner to dispose of such
Holder's or beneficial owner's notes within 30 days (or such lesser period
as may be ordered by such Gaming Authority) of
(x) the termination of the period described above for such Holder
or beneficial owner to apply for a license, qualification or finding
of suitability, or
(y) receipt of the notice from such Gaming Authority that such
Holder or beneficial owner will not be licensed, qualified or found
suitable by such Gaming Authority; or
(2) to redeem the notes of such Holder or beneficial owner at a
redemption price equal to the lesser of the principal amount thereof or the
price at which such Holder or beneficial owner acquired such notes,
together with, in either case, accrued and unpaid interest thereon to the
earlier of the date of redemption or such earlier date as may be required
by such Gaming Authority or the date of the finding of unsuitability by
such Gaming Authority, which may be less than 30 days following the notice
of redemption, if so ordered by such Gaming Authority.
Immediately upon a determination by any Gaming Authority that a Holder or
beneficial owner of notes will not be licensed, qualified or found suitable by
such Gaming Authority, such Holder or beneficial owner will have no further
rights with respect to the notes:
(1) to exercise, directly or indirectly, through any trustee, nominee
or any other Person or entity, any right conferred by the notes; or
(2) to receive any interest or any other distribution or payment with
respect to the notes, or any remuneration in any form from the Company for
services rendered or otherwise, except the redemption price of the notes.
Under the indenture, the Company is not required to pay or reimburse any
Holder or beneficial owner of notes who is required to apply for such license,
qualification or finding of suitability for the costs of the licensor or
investigation for such qualification or finding of suitability. Such expense
will, therefore, be the obligation of such Holder or beneficial owner. See "Risk
Factors -- We may be unable to obtain or maintain all the licenses, permits and
authorities required by the Colorado Gaming Commissioner to open and operate our
casino."
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Mandatory Redemption
Except as set forth below under "--Repurchase at the Option of Holders " or
under the acceleration provision of the indenture, the Company is not required
to make mandatory redemption or sinking fund payments with respect to the notes.
Selection and Notice
If less than all of the notes are to be redeemed at any time, selection of
notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
notes are listed, or, if the notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee will deem fair and appropriate; provided
that no notes of $1,000 or less will be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date (except in the case of redemption under "--Gaming
Redemption") to each Holder of notes to be redeemed at its registered address.
Notices of redemption may not be conditional. If any note is to be redeemed in
part only, the notice of redemption that relates to such note will state the
portion of the principal amount thereof to be redeemed. On and after the
redemption date, interest ceases to accrue on notes or portions of them called
for redemption.
Repurchase at the Option of Holders
Asset Sales
Subject to the terms of the Collateral Documents, the indenture provides
that the Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale, unless:
(1) the Black Hawk Casino is Operating;
(2) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value (evidenced by a resolution of the Company's Board of
Directors set forth in an Officers' Certificate delivered to the Trustee)
of the assets or Equity Interests issued or sold or otherwise disposed of;
(3) at least 80% of the consideration received by the Company or such
Subsidiary is in the form of cash or Cash Equivalents; and
(4) the assets subject to such Asset Sale do not constitute Collateral
or, in the case of any such assets that do constitute Collateral, such sale
is permitted by the applicable Collateral Documents or the indenture.
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For purposes of this provision, each of the following will be deemed to be
cash in the amount of:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by
their terms subordinated to the notes) that are assumed by the transferee
of any such assets pursuant to a customary novation agreement that releases
the Company or such Restricted Subsidiary from further liability; and
(b) any securities or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are promptly (but in
any event within 90 days) converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received).
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary, as the case may be, may (1) apply
such Net Proceeds to the making of a capital expenditure or the acquisition of
long-term assets, in either case, which will be owned by the Company or such
Restricted Subsidiary and be used by or useful to the Company or such Restricted
Subsidiary in any line of business in which the Company or such Restricted
Subsidiary is permitted to be engaged pursuant to the covenant described under
"-- Certain Covenants -- Line of Business," or (2) contractually commit to apply
such Net Proceeds to the payment of the costs of construction of real property
improvements or the costs of capital expenditures which, in each case, will be
Collateral and will be owned by the Company or such Restricted Subsidiary and be
used by or useful to the Company or such Restricted Subsidiary in any line of
business in which the Company or such Restricted Subsidiary is permitted to be
engaged pursuant to the covenant described under "-- Certain Covenants -- Line
of Business;" provided, that in the case of each of clause (1) and clause (2)
the Company or such Restricted Subsidiary, as the case may be, uses such
replacement asset at the same location as the assets sold and grants to the
Trustee, on behalf of the Holders, a first priority perfected security interest
on any such properties or assets acquired or constructed with the Net Proceeds
of any such Asset Sale on the terms set forth in the indenture and the
Collateral Documents. Pending the final application of any such Net Proceeds,
the Company or such Restricted Subsidiary may invest such Net Proceeds in Cash
Equivalents which will be pledged to the Trustee as security for the notes.
Any Net Proceeds from Asset Sales that do not constitute Collateral and
that are not applied or invested as provided in the prior paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an offer (an
"Asset Sale Offer") to all Holders to purchase the maximum principal amount of
notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase, which date will be no less
than 30 nor more than 60 days after the date of the Asset Sale Offer, in
accordance with the procedures set forth in the indenture. If any Excess
Proceeds remain after consummation of an Asset Sale Offer, the Company may repay
any principal amount, or accrued and unpaid interest thereon, owing pursuant to
the City Improvement Bonds, the FF&E Financing and/or the Second Mortgage Notes
(not to exceed, in the aggregate, the amount by which the Excess Proceeds
exceeds the aggregate principal amount of notes, plus accrued and unpaid
interest thereon, tendered in the Asset Sale Offer) and may, subject to the
provisions of the indenture and the Collateral Documents, use any remaining
Excess Proceeds for any purpose not otherwise prohibited by the indenture and
the Collateral Documents. If the aggregate principal amount of notes tendered in
such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee will
select the notes to be purchased in the manner described above under "--
Selection and Notice." Upon completion of such Asset Sale Offer, the amount of
Excess Proceeds will be reset at zero.
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Events of Loss
Subject to the conditions set forth below, within 90 days after any Event
of Loss with respect to any Collateral, the Company or the affected Restricted
Subsidiary of the Company, as the case may be, shall so notify the Trustee,
describing in such notice the nature of the Event of Loss in reasonable detail,
and shall (1) apply the Net Loss Proceeds from such Event of Loss to the
rebuilding, repair, replacement or construction of the improvements to the Black
Hawk Casino, with no concurrent obligation to make any offer to purchase any
notes; (2) if the Black Hawk Casino is not Operating and the Net Loss Proceeds
exceed $1.0 million, deposit the Net Loss Proceeds in the Construction
Disbursement Account to be disbursed in accordance with the procedures set forth
in the Disbursement Agreement; (3) if the Net Loss Proceeds exceed $1.0 million,
deliver to the Trustee within 60 days after such Event of Loss a written opinion
from a nationally recognized architect that the Black Hawk Casino, with at least
the Minimum Facilities, can be rebuilt, repaired, replaced or constructed and
Operating within not more than 360 days after the Event of Loss (but in no event
later than the date that is six months prior to the maturity date of the notes);
and (4) if the Net Loss Proceeds exceed $1.0 million, deliver an Officers'
Certificate certifying that the Company has available from Net Loss Proceeds or
other sources sufficient funds to complete the rebuilding, repair, replacement
or construction described in clause (1) above and in accordance with clause (3)
above.
Upon the occurrence of an Event of Loss with respect to any Collateral
having a fair market value or a replacement cost greater than $20 million, or if
upon the occurrence of any Event of Loss the Company is unable or fails to
furnish the written opinion from a nationally recognized architect as required
by clause (3) above, then the Company shall, simultaneously with the delivery of
the notice to the Trustee as set forth above, deliver to the Holders a notice
(an "Event of Loss Notice") providing for the following: an option either (a) to
allow the Company to apply the Net Loss Proceeds to the rebuilding, repair,
replacement or construction of the improvements to the Black Hawk Casino, or (b)
to require that the Company purchase the maximum principal amount of notes that
may be purchased out of the Net Loss Proceeds, at a purchase price in cash equal
to 100% of the principal amount thereof, plus accrued and unpaid interest
thereon to the date of purchase (an "Event of Loss Offer").
If Holders of a majority of the aggregate principal amount of the notes
then outstanding provide a written request (an "Event of Loss Acceptance")
within 30 days after the Event of Loss Notice that the Company effect an Event
of Loss Offer, then the Company must effect an Event of Loss Offer within 10
days after the Event of Loss Acceptance. The Event of Loss Offer must be
conducted in accordance with Section 3.10 of the indenture and must be
consummated not less than 30 nor more than 60 days after the date of such Event
of Loss Offer. To the extent that the aggregate principal amount of notes
tendered pursuant to an Event of Loss Offer exceeds the Net Loss Proceeds, the
Trustee shall select the notes to be purchased in the manner described above
under "-- Selection and Notice." To the extent that the aggregate amount of
notes tendered pursuant to an Event of Loss Offer is less than the Net Loss
Proceeds, the Company may repay any principal amount, or accrued and unpaid
interest thereon, owing pursuant to the City Improvement Bonds, the FF&E
Financing and/or the Second Mortgage notes (not to exceed, in the aggregate, the
amount by which the Net Loss Proceeds exceeds the aggregate principal amount of
notes, plus accrued and unpaid interest thereon, tendered in such Event of Loss
Offer) and may, subject to the other provisions of the indenture and the
Collateral Documents, use any remaining Net Loss Proceeds for any purpose not
otherwise prohibited by the indenture.
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In the event that an Event of Loss Acceptance is not given as provided in
the preceding paragraph, then the Company must utilize and apply the Net Loss
Proceeds to the rebuilding, repair, replacement or construction of the
improvements as aforesaid, consistence with the provisions of the indenture and
the Collateral Documents.
Until the rebuilding, repair, replacement or construction of the
improvements or any Event of Loss Offer is completed, the Company or the
affected Restricted Subsidiary, as the case may be, must pledge to the Trustee
as additional Collateral all Net Loss Proceeds or other cash on hand required
for such rebuilding, repair, replacement or construction under the terms of the
Collateral Documents relating to the Black Hawk Casino. The pledged funds will
be released to the Company or the affected Restricted Subsidiary to pay for or
reimburse the Company or the affected Restricted Subsidiary for the actual cost
of the permitted rebuilding, repair, replacement or construction, or the Event
of Loss Offer, only as provided in Section 4.28 of the indenture and in
accordance with the terms of the Collateral Documents relating to the Black Hawk
Casino. Until the final application of the Net Loss Proceeds, the proceeds may
be invested in Cash Equivalents which will be pledged to the Trustee as security
for the notes. The Company or the applicable Restricted Subsidiary will grant to
the Trustee, on behalf of the Holders, a first priority lien, subject to
Permitted Liens, on any properties or assets rebuilt, repaired, replaced or
constructed with the Net Loss Proceeds on the terms set forth in the indenture
and the Collateral Documents. With respect to any Event of Loss under clause (4)
of the definition of "Event of Loss" that has a fair market value (or
replacement cost, if greater) greater than $5.0 million, the Company (or the
affected Restricted Subsidiary, as the case may be), will be required to receive
consideration at least (1) equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets subject to the Event of Loss and (2) at
least 90% of which is in the form of Cash Equivalents.
Regardless of whether Net Loss Proceeds are made available to the Company
under the provisions of Section 4.28 of the indenture, upon the occurrence of an
Event of Loss the Company will promptly repair the improvements to be at least
equal in value and of substantially the same character and condition as prior to
such damage.
Excess Cash Purchase Offer
The indenture also provides that within 120 days after the end of each
Operating Year of the Company, beginning with the first Operating Year after the
Black Hawk Casino becomes Operating, the Company will make an offer to all
Holders (an "Excess Cash Flow Offer") to purchase the maximum principal amount
of notes that is an integral multiple of $1,000 that may be purchased with (1)
50% of the Company's Excess Cash Flow for the four consecutive fiscal quarters
ending on or immediately following the last day of such Operating Year then
ended plus (2) any amounts disbursed from the Cash Collateral Accounts and the
Hyatt Cash Collateral Accounts in accordance with Section 11 of the Cash
Collateral Disbursement Agreement that the Company elects, in its sole
discretion, to include in any Excess Cash Flow Offer (the sum of the foregoing
clauses (1) and (2), collectively, the "Excess Cash Flow Offer Amount"), at a
purchase price in cash equal to 101% of the principal amount of notes to be
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purchased, plus accrued and unpaid interest to the purchase date (the "Excess
Cash Flow Purchase Price"), in accordance with the procedures set forth in the
indenture. The Excess Cash Flow Offer will be required to remain open for 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law. Upon the expiration of that
period, the Company will apply the Excess Cash Flow Offer Amount to the purchase
of all notes tendered at the Excess Cash Flow Purchase Price. If the aggregate
principal amount of notes tendered under any Excess Cash Flow Offer exceeds the
Excess Cash Flow Offer Amount, the Trustee will select the notes to be
repurchased in the manner described below under the caption "--Selection and
Notice." To the extent that the aggregate principal amount of notes tendered
under any Excess Cash Flow Offer is less than the Excess Cash Flow Offer Amount,
the Company may repay any principal amount, or accrued and unpaid interest
thereon, owing under the City Improvement Bonds, the FF&E Financing and/or the
Second Mortgage notes (not to exceed, in the aggregate, the amount by which the
Excess Cash Flow Offer Amount exceeds 101% of the aggregate principal amount of
notes, plus accrued and unpaid interest, tendered in the Excess Cash Flow Offer)
and may, subject to the other provisions of the indenture, use any remaining
Excess Cash Flow for general corporate purposes and the amount of Excess Cash
Flows will be reset at zero.
Certain Covenants
Restricted Payments
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company or any
of its Restricted Subsidiaries) or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests in any
capacity (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or
distributions payable to the Company or a Wholly Owned Restricted
Subsidiary of the Company by a Wholly Owned Restricted Subsidiary of the
Company);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company or other Affiliate of the
Company (other than any such Equity Interests owned by the Company or any
Wholly Owned Restricted Subsidiary of the Company);
(3) make any payment of principal (whether or not at maturity) on or
with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is pari passu with or subordinated
to the notes (other than the notes) (including, but not limited to,
repayment of principal on the Second Mortgage Notes); or
(4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being collectively
referred to as "Restricted Payments"),
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unless, at the time of and after giving effect to such Restricted Payment:
(1) the Black Hawk Casino is Operating;
(2) no Default or Event of Default will have occurred and be
continuing or would occur as a consequence thereof;
(3) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable fiscal period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in clause (2) of the first
paragraph of the covenant described below under "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(4) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after
the Closing Date (excluding Restricted Payments permitted by clauses (2)
and (3) of the next succeeding paragraph), is less than the sum, without
duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing on the earlier of the date the Black
Hawk Casino is Operating or September 14, 2001 to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since the Closing Date of Equity
Interests of the Company (other than Disqualified Stock and other than
the Closing and Pre-Closing Equity Investments) or of Disqualified
Stock or debt securities of the Company that have been converted into
such Equity Interests (other than Equity Interests (or Disqualified
Stock or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus
(c) to the extent that any Restricted Investment that was made
after the Closing Date in compliance with this covenant is sold for
cash or otherwise liquidated or repaid for cash, the lesser of (A) the
cash return of capital with respect to such Restricted Investment
(less the cost of disposition, if any) and (B) the initial amount of
such Restricted Investment, plus
(d) the portion (proportionate to the Company's equity interest
in such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that such
portion shall not exceed, in the case of any Person, the amount of
Investments previously made (and treated as a Restricted Payment) by
the Company or any Restricted Subsidiary in such Person.
The preceding provisions will not prohibit the following Restricted
Payments:
(1) so long as no Default has occurred and is continuing or would be
caused by such payment, the payment of any dividend or distribution within
60 days after the date of declaration thereof, if at such date of
declaration such payment would have complied with the provisions of the
indenture;
(2) so long as no Default has occurred and is continuing or would be
caused by such payment, the redemption, repurchase, retirement, defeasance
or other acquisition of any pari passu Indebtedness, the Second Mortgage
Notes or Equity Interests of the Company in exchange for, or out of the net
cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of, other Equity Interests of the Company (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition will be excluded from clause (4)(b) of the
preceding paragraph;
(3) so long as no Default has occurred and is continuing or would be
caused by such payment, the defeasance, redemption, repurchase or other
acquisition of pari passu or subordinated Indebtedness, including the
notes, with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
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(4) so long as no Default has occurred and is continuing or would be
caused by such payment, the defeasance, repurchase, redemption or other
acquisition of the FF&E Financing pursuant to any scheduled prepayment or
mandatory sinking fund relating to such FF&E Financing at the time of its
incurrence in accordance with the terms of the indenture;
(5) without regard for whether a Default has occurred and is
continuing or would be caused by such payment, the repurchase of any Equity
Interests deemed to occur upon exercise of stock options or warrants if
such Equity Interests represent a portion of the exercise price of such
stock options or warrants;
(6) so long as no Default has occurred and is continuing or would be
caused by such payment, the declaration of any scheduled dividends to
holders of any Disqualified Stock of the Company or any of its Restricted
Subsidiaries issued after the Closing Date in compliance with the covenant
" -- Incurrence of Indebtedness and Issuance of Preferred Stock" described
below;
(7) without regard for whether a Default has occurred and is
continuing or would be caused by such payment, the repurchase, redemption
or other acquisition or retirement for value of any Equity Interests of the
Company or any Restricted Subsidiary of the Company required by any
applicable law, rule or regulation (other than any Gaming Law);
(8) without regard for whether a Default has occurred and is
continuing or would be caused by such payment, the repurchase, redemption
or other acquisition or retirement of any Equity Interests of the Company
or any Restricted Subsidiary of the Company required by any Gaming Law in
exchange for Gaming Redemption Indebtedness;
(9) so long as no Default has occurred and is continuing or would be
caused by such payment, the repurchase, redemption or repayment of any
principal amount, or accrued and unpaid interest thereon, owing pursuant to
the Second Mortgage Notes following an Excess Cash Flow Offer to the
extent, and only to the extent, the Excess Cash Flow Offer Amount from such
Excess Cash Flow Offer exceeds 101% of the aggregate principal amount of
notes, plus accrued and unpaid interest thereon, tendered in such Excess
Cash Flow Offer; and
(10) any payment to Hyatt Gaming pursuant to and in accordance with
the covenants "-Repurchase at the Option of Holders - Asset Sales,"
"-Repurchase at the Option of the Holders - Events of Loss" and "Repurchase
at the Option of the Holders - Excess Cash Purchase Offer."
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the assets or securities
proposed to be transferred or issued to or by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors whose resolution with
respect thereto will be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, the Company will deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the indenture.
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Incurrence of Indebtedness and Issuance of Preferred Stock
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to, contingently or otherwise (collectively, "incur"), any Indebtedness
(including Acquired Debt) and the Company will not issue any Disqualified Stock
and will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided, however, that, so long as no Default or Event of
Default has occurred and is continuing, the Company may incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified Stock if:
(1) the Black Hawk Casino is Operating;
(2) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.0 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued,
as the case may be, at the beginning of such four-quarter period; and
(3) the Weighted Average Life to Maturity of such Indebtedness is
greater than the remaining Weighted Average Life to Maturity of the notes.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) so long as no Default or Event of Default has occurred and is
continuing, the incurrence by the Company of Indebtedness represented by
the notes;
(2) without regard for whether a Default has occurred and is
continuing or would be caused by such payment, the issuance by the Company
of the new notes to be issued pursuant to the Registration Rights Agreement
or the incurrence by the Company and its Restricted Subsidiaries of
obligations arising under the Collateral Documents, to the extent that such
obligations would constitute Indebtedness;
(3) so long as no Default or Event of Default has occurred and is
continuing or would be caused by such payment, the incurrence by the
Company or any of its Restricted Subsidiaries of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund, Indebtedness that was
permitted by the indenture to be incurred under the first paragraph of this
covenant or clause (11) of this paragraph;
(4) without regard for whether a Default has occurred and is
continuing or would be caused by such payment, the incurrence by the
Company or any of its Restricted Subsidiaries of intercompany Indebtedness
between or among the Company and any of its Wholly Owned Restricted
Subsidiaries; provided, however, that:
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(a) such Indebtedness is expressly subordinate to the payment in
full of all Obligations with respect to the notes;
(b) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Restricted Subsidiary and any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Restricted Subsidiary will be deemed, in
each case, to constitute an incurrence of such Indebtedness by the
Company or such Wholly Owned Restricted Subsidiary, as the case may
be; and
(c) if any Restricted Subsidiary is the obligor on such
Indebtedness, such Indebtedness is represented by a Subsidiary
Intercompany Note that is pledged to the Trustee as security for the
notes;
(5) without regard for whether a Default has occurred and is
continuing or would be caused by such payment, the incurrence by the
Company of Hedging Obligations that (a) are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the indenture to be incurred
by the Company under clause (9) below and (b) are on terms approved by the
Holders of a majority in aggregate principal amount of the notes (which
approval shall not be unreasonably withheld);
(6) so long as no Default or Event of Default has occurred and is
continuing, the incurrence by the Company of Indebtedness solely in respect
of City Improvement Bonds in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding not to exceed $3.0 million;
(7) so long as no Default or Event of Default has occurred and is
continuing, the incurrence by the Company of Indebtedness solely in respect
of standby letters of credit or surety bonds required to be issued under
the Excavation Agreement (a) in an amount not to exceed the lesser of: 110%
of the cost of the remaining work to be performed thereunder or $7.5
million and (b) on terms acceptable to the Holders of a majority in
interest of the aggregate principal amount of the notes (which approval
shall not be unreasonably withheld);
(8) so long as no Default or Event of Default has occurred and is
continuing, the incurrence by the Company of Indebtedness solely in respect
of performance or similar bonds or standby letters of credit; provided that
any such bond or standby letter of credit is incurred in the ordinary
course of the Company's business pursuant to the Public Improvements
Performance Guarantee pursuant to paragraph 11 of the Subdivision Agreement
or the Bench Excavation Permit Remediation in an aggregate principal amount
not to exceed $2.0 million at any one time outstanding; and provided,
further, that any such bond or standby letter of credit is incurred on
terms customary for operations similar to the Company's and, provided,
further, that such Indebtedness in an amount and to the extent that funds
are disbursed to the City of Black Hawk pursuant to such Subdivision
Agreement or Bench Excavation Permit Remediation;
(9) so long as no Default or Event of Default has occurred and is
continuing the incurrence by the Company of FF&E Financing with the consent
of Holders of a majority in the aggregate principal amount of the notes
(which consent shall not be unreasonably withheld); provided, however, that
(a) the principal amount of such Indebtedness does not exceed the cost
(including sales and excise taxes, installation and delivery charges and
other direct costs of, and other direct expenses paid or charged in
connection with, such purchase) of the FF&E purchased or leased with the
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proceeds thereof, (b) no Indebtedness incurred under the notes is utilized
for the purchase or lease of such FF&E, (c) the aggregate principal amount
of such Indebtedness does not exceed $20.8 million outstanding at any time;
and (d) the payment of interest and principal shall be amortized over at
least a four-year period from the date of issuance, with payments to be
applied first to interest and then to principal on a monthly (or less
frequent) basis, which monthly (or less frequent) payments shall not exceed
$600,000 per month (or proportionately greater amount for less frequent
payments);
(10) so long as no Default or Event of Default has occurred and is
continuing, the incurrence by the Company of Indebtedness or the issuance
by the Company of Disqualified Stock solely to finance the construction of
a hotel, parking structure and related facilities at the Black Hawk Casino
during the first Operating Year, so long as the Fixed Charge Coverage Ratio
for the Company's most recently ended two full fiscal quarters for which
internal financial statements are available immediately preceding the date
on which such additional Indebtedness is incurred or such Disqualified
Stock is issued would have been at least 2.0 to 1, determined on a pro
forma basis, as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of
such two-quarter period;
(11) without regard for whether a Default has occurred and is
continuing or would be caused by such payment, bond or surety obligations
posted by the Company or any of its Restricted Subsidiaries in order to
prevent the loss or material impairment of or to obtain a Gaming License or
as otherwise required by an order of any Gaming Authority to the extent
required by applicable law and consistent in character and amount with
customary industry practice so long as such Indebtedness does not result
in, and is not secured by, a Lien on any of the Collateral;
(12) so long as no Default or Event of Default has occurred and is
continuing, the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in aggregate principal amount not
to exceed $5.0 million; provided that such Indebtedness, has terms and is
subordinated in right of payment to the payment in full in cash of the
notes pursuant to terms, approved by the holders of a majority in aggregate
principal amount of the notes (which approval shall not be unreasonably
withheld);
(13) so long as no Default or Event of Default has occurred and is
continuing, the incurrence by the Company of the Second Mortgage Notes as
in effect on the Closing Date;
(14) without regard for whether a Default has occurred and is
continuing or would be caused by such payment, the incurrence by the
Company of Gaming Redemption Indebtedness as a result of any Gaming
Redemption; provided that such Indebtedness has terms, and is subordinated
in right of payment in full in cash of the notes pursuant to terms,
approved by the holders of a majority in aggregate principal amount of the
notes (which approval shall not be unreasonably withheld); and
(15) so long as no Default or Event of Default has occurred and is
continuing, the incurrence by the Company of additional notes issued to the
Ravich Revocable Trust of 1989 or Affiliates of the foregoing in the
aggregate principal amount not to exceed $5.0 million; provided that such
Indebtedness is used solely to finance the completion of the development,
construction and initial equipment (other than equipment secured by or
purchased with the proceeds of any FF&E Financing) of the Black Hawk Casino
prior to the Operating of the Black Hawk Casino; provided, further, that
the Construction Disbursement Account and the Hyatt Gaming Construction
Disbursement Account have been depleted and less than $4.0 million of
aggregate proceeds remains in the Completion Reserve Account and the Hyatt
Gaming Completion Reserve Account and the Company reasonably believes that
the funds remaining in the Completion Reserve Account and the Hyatt Gaming
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Completion Reserve Account will not be sufficient to finance completion of
the development, construction and initial equipment (other than equipment
secured by or purchased with the proceeds of any FF&E Financing) of the
Black Hawk Casino sufficient for the Black Hawk Casino to begin Operating;
and provided, further, that the Company reasonably believes that the
incurrence of such additional Indebtedness will provide proceeds to the
Company that are sufficient to finance the completion of the development,
construction and initial equipment of the Black Hawk Casino sufficient for
the Black Hawk Casino to begin Operating.
The Company will not incur any Indebtedness (including Permitted Debt) that
is contractually subordinated in right of payment to any other Indebtedness of
the Company unless such Indebtedness is also contractually subordinated in right
of payment to the notes on substantially identical terms; provided, however,
that no Indebtedness of the Company will be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Company solely
by virtue of being secured.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (15) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company will be permitted to classify such item of Indebtedness on the date of
its incurrence in any manner that complies with this covenant.
Liens
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset now owned or hereafter acquired, or any
proceeds, income or profits therefrom or assign or convey any right to receive
income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Company or any of its Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by its profits, or pay
any indebtedness owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries.
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However, the preceding restrictions will not apply to such encumbrances or
restrictions existing under or by reason of:
(1) the indenture, the notes or the Collateral Documents;
(2) applicable law;
(3) by reason of customary non-assignment provisions in leases or
contracts entered into in the ordinary course of business;
(4) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced;
(5) the acquisition of the Capital Stock of any Person, or property or
assets of any Person by the Company or any Restricted Subsidiary, if the
encumbrances or restrictions (a) existed at the time of the acquisition and
were not incurred in contemplation thereof and (b) are not applicable to any
Person or the property or assets of any Person other than the Person
acquired or the property or assets of the Person acquired;
(6) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(7) Liens securing FF&E Financing that limit the right of the debtor
to dispose of the assets subject to such Lien; and
(8) the Second Mortgage Notes.
Merger, Consolidation or Sale of Assets
The indenture provides that the Company may not, directly or indirectly (1)
consolidate or merge with or into (whether or not the Company is the surviving
corporation), or (2) sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity, unless:
(1) either (a) the Company is the surviving corporation or the entity,
or (b) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia;
(2) the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made assumes all the obligations of the Company under the notes, the
Collateral Documents and the indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists;
(4) such transaction would not result in the loss or suspension or
material impairment of any Gaming License unless a comparable replacement
Gaming License is effective prior to or simultaneously with such loss,
suspension or material impairment;
(5) except in the case of a merger of the Company with or into a
Wholly Owned Subsidiary of the Company, the Company or the entity or Person
formed by or surviving any such consolidation or merger (if other than the
Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made:
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction; and
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(b) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described above under "--Incurrence of Indebtedness and Issuance of
Preferred Stock;"
(6) such transaction would not require any Holder or beneficial owner
of notes to obtain a Gaming License or be qualified or found suitable under
the law of any applicable gaming jurisdiction; provided that such Holder or
beneficial owner would not have been required to obtain a Gaming License or
be qualified or found suitable under the laws of any applicable gaming
jurisdiction in the absence of such transaction; and
(7) the Black Hawk Casino is Operating.
Transactions with Affiliates
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $1.0 million, a resolution of the Company's Board of
Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (1) above and that such
Affiliate Transaction has been approved by a majority of the
disinterested Directors, and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, an opinion as to the fairness to the Holders
of such Affiliate Transaction from a financial point of view issued by
an independent accounting, appraisal or investment banking firm of
national standing.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) payments made pursuant to the Management Agreement and the Second
Mortgage Notes as in effect on the Closing Date so long as such payments
are not prohibited by the provisions of the indenture described under "--
Restriction of Payment of Management Fees" or "-- Restricted Payments;"
(2) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business on terms
customary in the gaming industry providing for payments not to exceed
$240,000 individually during any twelve-month period (so long as the
aggregate payments to all employees, consultants, accountants, attorneys,
representatives, developers and other professionals (other than Hyatt
Gaming) and the aggregate costs associated with the operations of the
Company (other than pursuant to the Management Agreement) do not exceed
$700,000 in the aggregate during any twelve-month period beginning after
the Black Hawk Casino is Operating);
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(3) any indemnification agreement entered into by the Company or any
of its Restricted Subsidiaries in the ordinary course of business on terms
customary in the gaming industry;
(4) Restricted Payments that are permitted by the provisions of the
indenture described above under "--Restricted Payments;"
(5) any transaction or series of transactions solely between the
Company and one or more of its Restricted Subsidiaries; and
(6) Affiliate Agreements pursuant to written, executed agreements in
effect on the Closing Date, the material terms of which are described in
this Offering memorandum supplement, and renewals and extensions of such
agreements on terms no less favorable to the Holders than the terms of such
original agreements and transactions.
Notwithstanding the foregoing, provisions of this covenant, the Company
will not permit:
(1) the aggregate amount of all salary and benefits payments (whether
in cash or other property) made directly or indirectly to all employees of
the Company (exclusive of the Company's construction management personnel
under the direction of Building Sciences, as set forth in the Construction
Disbursement Budget, in an amount not to exceed $375,000 during any
twelve-month period), including Mr. Daniel Robinowitz, Mr. Timothy Rose,
Mr. Michael Armstrong and the two administrative assistants, as set forth
in the Construction Disbursement Budget, to exceed (a) $800,000 during the
twelve-month period beginning on the Closing Date or (b) $1.2 million
during the period beginning on the Closing Date and ending on the first
date on which the Black Hawk Casino is Operating, excluding reimbursement
for reasonable and documented travel and related expenses included in the
Construction Disbursement Budget of approximately $225,000 in the aggregate
for the period beginning on the Closing Date and ending on the first date
on which the Black Hawk Casino is Operating;
(2) Mr. Robinowitz, Mr. Rose, Mr. Armstrong and their affiliates to be
paid any other consulting fees, development fees, salary or other
compensation for services provided to the Company except as provided in
clause (1) above, and except for,
(a) the issuance of $1.7 million aggregate liquidation preference
of series A preferred stock and payment of $300,000 in cash to Mr.
Robinowitz for past salaries and other project development costs,
including reimbursement of expenses,
(b) consideration for consulting services rendered by Timothy G.
Rose payable to Mr. Rose in the aggregate amount of approximately
$421,000 in cash, and
(c) consideration for consulting services rendered by Mr. Craig
F. Sullivan payable to Mr. Sullivan in the amount of $150,000 in cash,
in each case, payable on the Closing Date; or
(3) the aggregate amount of all payments (whether in cash or other
property) to all employees, consultants, accountants, attorneys,
developers, representatives and other professionals (other than Hyatt
Gaming) that are retained by or on behalf of the Company, together with the
aggregate costs associated with the operations of the Company (other than
pursuant to the Management Agreement) to exceed $700,000 in the aggregate
during any twelve-month period beginning on and after the first date on
which the Black Hawk Casino is Operating.
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Construction
The indenture provides that the Company will cause construction of the
Black Hawk Casino, including the furnishing, fixturing and equipping thereof, to
be prosecuted with diligence and continuity in a good and workmanlike manner
substantially in accordance with the Plans and Contracts to which the Company is
a party and in accordance with the Cash Collateral and Disbursement Agreement.
Limitations on Use of Proceeds
The indenture requires the Company to cause the net proceeds of the unit
offering, and the proceeds from the issuance of the Second Mortgage Notes, to be
deposited in the Cash Collateral Accounts and Hyatt Gaming Cash Collateral
Accounts, of which approximately $24.1 million has been deposited in the
Interest Reserve Account and invested solely in Government Securities,
approximately $58.6 million has been deposited in the Construction Disbursement
Account and the Hyatt Gaming Construction Disbursement Account and invested
solely in Investment Grade Securities, and approximately $7.1 million has been
deposited in the Completion Reserve Account and the Hyatt Gaming Completion
Reserve Account and invested solely in Investment Grade Securities, in each
case, to be disbursed only in accordance with the Cash Collateral and
Disbursement Agreement. The Company shall only be permitted to issue up to an
additional $35.0 million aggregate principal amount of additional notes under
the indenture. The Company shall cause the net proceeds of the offering of up to
$5.0 million of additional notes to The Ravich Revocable Trust of 1989 or
Affiliates of the foregoing to be used solely to finance the completion of the
development, construction and initial equipment of the Black Hawk Casino prior
to the operating of the Black Hawk Casino; and up to $30.0 million of additional
notes to be used solely for the purpose of financing the construction of a
hotel, parking structure and related buildings at the Black Hawk Casino or the
property owned by the Company in Black Hawk, Colorado each, pursuant to the
terms of the indenture.
Limitation on Status as Investment Company
The indenture prohibits the Company and its Subsidiaries from being
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming subject
to regulation under the Investment Company Act of 1940.
Sale and Leaseback Transactions
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company or any of its Restricted Subsidiaries may
enter into a sale and leaseback transaction if:
(1) the Company or such Restricted Subsidiary could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to such
sale and leaseback transaction pursuant to the first paragraph of the
covenant described above under "--Incurrence of Additional Indebtedness and
Issuance of Preferred Stock" and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described above under "--Liens";
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(2) the gross cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to
the Trustee) of the property that is the subject of such sale and leaseback
transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described above under "--Repurchase at the
Option of Holders --Asset Sales."
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by the Company and its Restricted Subsidiaries in
the Subsidiary so designated will be deemed to be an Investment made as of the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of the covenant described above under the
caption "--Restricted Payments" or Permitted Investments, as applicable. All
such outstanding Investments will be valued at their fair market value at the
time of such designation. That designation will only be permitted if such
Restricted Payment would be permitted at that time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The
Board of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if the redesignation would not cause a Default.
Restrictions on Preferred Stock of Restricted Subsidiaries
The indenture provides that the Company will not permit any of its
Restricted Subsidiaries to issue any preferred stock, or permit any Person to
own or hold an interest in any preferred stock of any such Subsidiary, except
for preferred stock issued to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
Limitation on Formation of Subsidiaries and Issuances and Sales of Capital Stock
of Wholly Owned Subsidiaries
The indenture provides that, without the consent of Holders of a majority
in aggregate principal amount of the notes, the Company shall not, directly or
indirectly, create or acquire or agree to create or acquire any Subsidiaries.
The indenture provides that the Company (1) will not, and will not permit any of
its Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise
dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the
Company), unless (a) such transfer, conveyance, sale, lease or other disposition
is of all the Capital Stock of such Wholly Owned Restricted Subsidiary and (b)
the cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above under
"--Asset Sales" or the covenant described above under "-- Merger, Consolidation,
or Sale of Assets" and (2) will not permit any of its Wholly Owned Restricted
Subsidiaries to issue any of its Equity Interests (other than, if necessary,
shares of its Capital Stock constituting directors' qualifying shares) to any
Person other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company.
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Line of Business
The indenture provides that the Company will not, and will not permit any
Subsidiary to, engage in any business, development or investment activities
other than the Gaming Business at the Black Hawk Casino and/or the operation of
a hotel at the Black Hawk Casino..
Advances to Subsidiaries
The indenture provides that all advances to Subsidiaries made by the
Company from time to time after the Closing Date will be evidenced by unsecured
Subsidiary Intercompany Notes in favor of the Company that will be pledged to
the Trustee as Collateral to secure the notes. Each Subsidiary Intercompany Note
will be payable upon demand and will bear interest at the same rate as the
notes.
Reports
The indenture provides that, whether or not required by the rules and
regulations of the Commission, beginning with respect to the Company's fiscal
quarter ended March 31, 2000, and continuing for so long as any notes are
outstanding, the Company will furnish to the Holders (1) all consolidated
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
was required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial position and results of operations of the Company and its Subsidiaries
and, with respect to the annual information only, a report thereon by the
Company's certified independent accountants and (2) all current reports that
would be required to be filed with the Commission on Form 8-K if the Company was
required to file such reports. In addition, whether or not required by the rules
and regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company has agreed that, for so long as any notes remain outstanding, it will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Insurance
The indenture provide that, until the notes have been paid in full, the
Company will, and will cause its Restricted Subsidiaries to, maintain insurance
with responsible carriers against such risks and in such amounts as is
customarily carried by similar businesses with such deductibles, retentions,
self insured amounts and coinsurance provisions as are customarily carried by
similar businesses of similar size, including, without limitation, property and
casualty, and, with respect to insurance on the Collateral, will have provided
insurance certificates evidencing such insurance to the Trustee on or prior to
the Closing Date and will thereafter provide such certificates prior to the
anniversary or renewal date of each such policy, which certificate will
expressly state the expiration date for each policy listed. Customary insurance
coverage will be deemed to include the following:
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(1) workers' compensation insurance to the extent required to comply
with all applicable state, territorial or United States laws and
regulations, or the laws and regulations of any other applicable
jurisdiction;
(2) comprehensive general liability insurance with minimum limits of
$1.0 million;
(3) umbrella or excess liability insurance providing excess liability
coverages over and above the foregoing underlying insurance policies up to
a minimum limit of $25.0 million;
(4) business interruption insurance at all times on and after the
Black Hawk Casino is Operating; and
(5) property insurance protecting the property against loss or damage
by fire, lightning, windstorm, tornado, water damage, vandalism, riot,
earthquake, civil commotion, malicious mischief, hurricane and such other
risks and hazards as are from time to time covered by an "all-risk" policy
or a property policy covering "special" causes of loss. Such insurance will
provide coverage in the amount of not less than the lesser of 120% of the
outstanding principal amount of the notes plus accrued and unpaid interest
and 100% of actual replacement value (as determined at each policy renewal
based on the F.W. Dodge Building Index or some other recognized means) of
any improvements customarily insured consistent with industry standards and
with a deductible no greater than 2% of the insured value of the Black Hawk
Casino or such greater amount as is available on commercially reasonable
terms (other than earthquake or flood insurance, for which the deductible
may be up to 10% of such replacement value).
All insurance required under the indenture (except worker's compensation)
will name the Company and the Trustee as additional insureds or loss payees, as
the case may be, with losses in excess of $1.0 million payable jointly to the
Company and the Trustee (unless a Default or Event of Default has occurred and
is then continuing, in which case all losses are payable solely to the Trustee),
with no recourse against the Trustee for the payment of premiums, deductibles,
commissions or club calls, and for at least 30 days notice of cancellation. All
such insurance policies will be issued by carriers having an A.M. Best &
Company, Inc. rating of A or higher and a financial size category of not less
than X, or if such carrier is not rated by A.M. Best & Company, Inc., having the
financial stability and size deemed appropriate by an opinion from a reputable
insurance broker. The indenture provides that the Company will deliver to the
Trustee on the Closing Date and each anniversary thereafter a certificate of an
insurance agent stating that the insurance policies obtained by the Company and
its Restricted Subsidiaries comply with this covenant and the related applicable
provisions of the Collateral Documents.
Restriction on Payment of Management Fees
The Company will not, directly or indirectly, pay to Hyatt Gaming or any of
its Affiliates any Management Fees except pursuant to the Management Agreement
as in effect on the Closing Date. Amounts payable pursuant to the Management
Agreement and the Manager Subordination Agreement will not be prepaid, and no
payment of the Incentive Fee (as defined in the Management Agreement as in
effect on the Closing Date), either current or accrued, will be made prior to
the date the Black Hawk Casino is Operating or if at the time of payment of such
Incentive Fee:
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(1) a Default or an Event of Default shall have occurred and be
continuing or will occur as a result thereof; or
(2) the Company's Fixed Charge Coverage Ratio for its most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such Incentive Fee is
proposed to be paid would have been less than 1.5 to 1.0 (calculated on a
pro forma basis after deducting from Consolidated Cash Flow (a) Incentive
Fees paid in cash in accordance with the Management Agreement after the
first day of such fiscal period and (b) any Incentive Fees deferred from a
prior period proposed to be paid in cash during such period, but excluding
any Incentive Fees deferred or accrued and not paid in cash during such
period).
With respect to periods following the date the Black Hawk Casino first
becomes Operating and prior to the time when internal financial statements are
available for four full fiscal quarters following the date the Black Hawk Casino
first becomes Operating, such Fixed Charge Coverage Ratio will be calculated
only with respect to the number of full fiscal quarters (but in no event less
than one full fiscal quarter) for which internal financial statements are
available following the date the Black Hawk Casino first becomes Operating. Any
Incentive Fees not permitted to be paid pursuant to this covenant will be
deferred and will accrue without interest and may be paid only at such time that
they would otherwise be permitted to be paid under this covenant.
The right of Hyatt Gaming to receive payment of the Incentive Fee will be
subordinate in right of payment to the right of the Holders to receive payments
in full in cash of all obligations with respect to the notes pursuant to the
terms of the Manager Subordination Agreement.
The terms of the Management Agreement cannot be amended to increase amounts
to be paid thereunder, or in any other manner which would be adverse to the
Company or the Holders, including without limitation, to amend the method of
computing the Annual Management Fee, the Basic Fee or the Incentive Fee in each
case, as defined in the Management Agreement); provided, however, that the
foregoing will not prohibit any amendment required under any Gaming Law or by
any Gaming Authority.
Approvals Under Management Agreement
The indenture provides that in the event that Hyatt Gaming has any right to
approve any drawings, plans, specifications or contract in connection with the
construction, equipping and opening of the Black Hawk Casino, the Company will
prepare, enter into and/or submit to Hyatt Gaming for approval such drawings,
plans, specifications and contracts that the Company reasonably believes Hyatt
Gaming will approve and/or Hyatt Gaming has indicated it would approve (or waive
its approval rights with respect to), so long as the fees and costs associated
with such drawings, plans, specifications and contracts, as adopted or executed,
would not exceed the amount allocated for such items in the Cash Collateral and
Disbursement Agreement.
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Deposit of Funds into Construction Disbursement Accounts
When any cash or other proceeds are released from any existing escrow
account or security deposit made by or held for the benefit of the Company, the
Company shall cause such cash or other proceeds to be deposited into the
Construction Disbursement Account and the Hyatt Gaming Construction Disbursement
Account on a pro rata basis promptly following the release of such cash or other
proceeds.
Additional Subsidiary Guarantees
Without limiting the provisions of "--Limitation on Formation of
Subsidiaries and Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries," the indenture provides that if the Company or any of its
Restricted Subsidiaries shall acquire or create a Restricted Subsidiary after
the Closing Date, the Company shall cause such newly acquired or created
Restricted Subsidiary to execute a Guarantee in the form of a supplemental
indenture, and the Company shall execute and deliver, and cause such Subsidiary
or others to execute and deliver to the trustee such Collateral Documents and
shall execute and deliver, and cause such Subsidiary or others to execute and
deliver such other documents, Opinions of Counsel as the Holders of a majority
in aggregate principal amount of the notes shall require to create, or to
confirm the creation of, a valid, perfected, first priority security interest in
and Lien on the property and other assets of such Restricted Subsidiary, and
100% of the outstanding Capital Stock of such newly acquired or created
Subsidiary.
Right of First Offer with Respect to Hotel Additional Notes
The indenture provides that in the event the Company elects to issue any
Hotel Additional Notes pursuant to the covenant described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company will provide to
Ableco Finance LLC and its Affiliates ("Ableco"), on behalf of itself, its
Affiliates and its accounts, the right to purchase some or all of such Hotel
Additional Notes in accordance with the covenant described under "--Incurrence
of Indebtedness and Issuance of Preferred Stock." Prior to the issuance of any
Hotel Additional Notes, the Company will:
(1) provide to Ableco and its representatives written calculations of
the estimated project costs associated with the Hotel Project for at least
10 Business Days prior to the commencement of the business and legal due
diligence described in clause (2) below and at least 5 Business Days prior
to the commencement of the negotiations described in clause (3) below (it
being understood that the estimated project costs shall provide such detail
that (x) is customary in the private placement market for a financing of
the type contemplated by the Hotel Additional Notes, (y) is similar in
scope to the estimated project cost detail provided in connection with the
offering of the notes and (z) is in sufficient form to enable an investor
to make a determination of whether to invest in the Hotel Project;
(2) provide Ableco and its representatives with reasonable access to
the Company's management and outside legal advisors in order to conduct
business and legal due diligence during at least a 10 Business Day period;
and
(3) negotiate the pricing terms of the Hotel Additional Notes with
Ableco and its representatives in good faith during at least a 20 Business
Day period commencing with the commencement of the business and legal due
diligence described in the foregoing clause (2) and draft and finalize the
legal documentation for the purpose of such Hotel Additional Notes by
Ableco (and/or its Affiliates and accounts) at the end of such 20 Business
Day period.
If, at the end of the 20 Business Day period described in clause (3), of
the foregoing paragraph, Ableco, on behalf of itself, its Affiliates or any of
its accounts, has not entered into a binding legal commitment to purchase any of
the Hotel Additional Notes (or if, at the end of such 20 Business Day period
Ableco has entered into a binding legal commitment to purchase only some of the
Hotel Additional Notes that the Company offered to Ableco pursuant to the
foregoing paragraph (a)), the Company shall during the 90 Business Day period
following the end of such 20 Business Day period be permitted to consummate the
sale (or enter into a binding legal commitment to consummate such sale) to any
Person of any Hotel Additional Notes offered to Ableco pursuant to the foregoing
paragraph that were not purchased by Ableco or any of its Affiliates or
accounts.
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If at the end of the 90 Business Day period described in the foregoing
paragraph, the Company has not entered into binding legal commitments to sell
all of the Hotel Additional Notes that it desires to sell, the Company shall
offer to sell such Hotel Additional Notes to Ableco in accordance with the first
two paragraphs of this covenant.
Articles of Incorporation
The Indenture provide that the Company shall not amend Article Fifth or
Article Ninth of its Amended and Restated Articles of Incorporation as in effect
on the Closing Date.
Further Assurances
The indenture provides that the Company will (and will cause each of its
Restricted Subsidiaries to) do, execute, acknowledge, deliver, record,
re-record, file, re-file, register and re-register, as applicable, any and all
such further acts, deeds, conveyances, security agreements, mortgages,
assignments, estoppel certificates, financing statements and continuations
thereof, termination statements, notices of assignment, transfers, certificates,
assurances and other instruments as may be required from time to time in order:
(1) to carry out more effectively the purposes of the Collateral
Documents;
(2) to subject to the Liens created by any of the Collateral Documents
any of the properties, rights or interests required to be encumbered by
them;
(3) to perfect and maintain the validity, effectiveness and priority
of any of the Collateral Documents and the Liens intended to be created by
them; and
(4) to better assure, convey, grant, assign, transfer, preserve,
protect and confirm to the Trustee any of the rights granted now or
hereafter intended by the parties thereto to be granted to the Trustee or
under any other instrument executed in connection therewith or granted to
the Company under the Collateral Documents or under any other instrument
executed in connection therewith.
Cash Collateral and Disbursement Agreement
Pursuant to the Cash Collateral and Disbursement Agreement entered into
among the Company, the Trustee, Hyatt Gaming, the Disbursement Agent, the
Independent Construction Consultant and the Construction Escrow Agent (each as
defined in the Cash Collateral and Disbursement Agreement) in connection with
the Black Hawk Casino, the net proceeds of the unit offering, together with the
proceeds from the issuance of the Second Mortgage Notes, in the amount of
approximately $89.4 million have been placed into the Cash Collateral Accounts
and the Hyatt Gaming Cash Collateral Accounts to be invested in Government
Securities and Investment Grade Securities, to be disbursed by the Disbursement
Agent pursuant to the Cash Collateral and Disbursement Agreement.
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Interest Reserve Account
Approximately $58.6 million of the net proceeds of the unit offering have
been deposited in the Interest Reserve Account. Funds and other assets held in
the Interest Reserve Account have been pledged to the Trustee for the benefit of
the Holders. Such funds are in an amount sufficient to purchase Government
Securities which, upon receipt of scheduled interest and principal payments
therefrom will provide for payment in full of the first four interest payments
due on the notes through March 15, 2002. The Company has pledged such Government
Securities to the Trustee, for the benefit of itself and the Holders, and, the
Trustee has purchased Government Securities with such funds. The Government
Securities will be held by the Trustee in the Interest Reserve Account. Pursuant
to the Cash Collateral and Disbursement Agreement, immediately prior to the date
of each of the first four interest payments due on the notes, the Trustee will
release from the Interest Reserve Account funds sufficient to pay interest then
due. Interest earned on the Government Securities will be added to the Interest
Reserve Account.
In the event that any funds remain in the Interest Reserve Account after
all such interest payments are made, the Trustee will release such funds to the
Construction Disbursement Account or, in the event that the Construction
Disbursement Account is closed, to the Company. In the event that the aggregate
amount of funds and Government Securities held in the Interest Reserve Account
are not sufficient at the time of payment to pay in full such interest payment,
the Disbursement Agent will, at the direction of the Trustee, transfer funds
from the Completion Reserve Account to the Interest Reserve Account in an amount
necessary to make such interest payment.
Construction Disbursement Account and Hyatt Gaming Construction Disbursement
Account
Approximately $58.6 million of the net proceeds of the unit offering and
the issuance of the Second Mortgage Notes has been deposited in the Construction
Disbursement Account and Hyatt Gaming Construction Disbursement Account. Funds
and other assets held in the Construction Disbursement Account and Hyatt Gaming
Construction Disbursement Account have been pledged to the Trustee for the
benefit of itself and the Holders until disbursed in accordance with the Cash
Collateral and Disbursement Agreement. Such funds have been invested in
Investment Grade Securities by the Disbursement Agent in accordance with the
Company's instructions (subject to the indenture) until needed from time to time
to fund the development, construction and opening of the Black Hawk Casino.
To obtain funds from the Construction Disbursement Account and Hyatt Gaming
Construction Disbursement Account, the Company must submit an Officer's
Certificate requesting such funds, which must include certifications that:
(1) set forth a detailed itemization of the amounts requested for
payment of Hard Costs (as defined in the Cash Collateral and Disbursement
Agreement), and an itemization of Soft Costs (as defined in the Cash
Collateral and Disbursement Agreement);
(2) all invoices and mechanic lien waivers and releases provided by
the Company to the Independent Construction Consultant and Construction
Escrow Agent are true and correct copies;
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(3) the Construction Disbursement Budget accurately sets forth the
anticipated Construction Expenses (as defined in the Cash Collateral and
Disbursement Agreement) for the completion of the Black Hawk Casino in
accordance with the Plans in all material respects, and the Company is not
aware of any other costs or expenses required to complete the Black Hawk
Casino which are not included in the Construction Disbursement Budget
except for De Minimis Construction Expenses (as defined in the Cash
Collateral and Disbursement Agreement exceed $50,000 in the aggregate);
(4) after giving effect to the requested disbursement, the Available
Funds (as defined in the Cash Collateral and Disbursement Agreement) will
be sufficient to complete the Black Hawk Casino in accordance with the
Construction Disbursement Budget, as amended to date, on or before the
Operating Deadline;
(5) immediately prior to and after the disbursement, no Default or
Event of Default will exist;
(6) the amount requested is consistent with the amount of work
performed or materials completed to date;
(7) the Company reasonably believes that the Black Hawk Casino will be
operating on or prior to the Operating Deadline (as defined in the Cash
Collateral and Disbursement Agreement);
(8) the Company has delivered to the Independent Construction
Consultant true and complete copies of all Plans and Contracts to which the
Company is a party with payment obligations of at least $10,000; and
(9) the funds to be disbursed to the Company will be used in
accordance with the disbursement request, which may include operating
expenses and other working capital requirements of the Company. The request
by the Company also must include a certificate from the General Contractor,
Architect and Excavator (if applicable) certifying certain statements by
the Company in its Officer's Certificate.
Upon the delivery from the Company to the Disbursement Agent of an
Officer's Certificate requesting a disbursement for costs then incurred in the
development, construction and opening of the Black Hawk Casino, the Disbursement
Agent will disburse funds from the Construction Disbursement Account and Hyatt
Gaming Construction Disbursement Account only upon the satisfaction of the
disbursement conditions set forth in the Cash Collateral and Disbursement
Agreement, which consist of the following:
(1) the confirmation by the Disbursement Agent that:
(a) the request for disbursement is in compliance with the Cash
Collateral and Disbursement Agreement, and
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(b) the Disbursement Agent has not received notice that any
Default or Event of Default exists under the indenture or the Cash
Collateral and Disbursement Agreement;
(2) the delivery by the Independent Construction Consultant to the
Disbursement Agent of a certificate stating that:
(a) the Independent Construction Consultant has reviewed the
Plans then in effect and inspected the Black Hawk Casino within the
prior 30 days;
(b) the work performed conforms to the Plans;
(c) with respect to Hard Costs, such disbursements are
appropriate based on invoices tendered for work that has been
completed and the amount of stored materials;
(d) the Construction Disbursement Budget accurately sets forth
the anticipated Construction Expenses (as defined in the Cash
Collateral and Disbursement Agreement) for the completion of the Black
Hawk Casino in accordance with the Plans; and
(e) after giving effect to the requested disbursement, there will
be sufficient Available Funds (as defined in the Cash Collateral and
Disbursement Account Agreements) to complete the Black Hawk Casino in
accordance with the Construction Disbursement Budget, as amended to
date, on or before the Operating Deadline; and
(3) the delivery by the Construction Escrow Agent to the Disbursement
Agent of a letter stating that:
(a) the Construction Escrow Agent has received lien waivers and
releases from all Contractors paid with funds disbursed pursuant to
prior disbursement requests;
(b) the Title Company is prepared to issue a date down
endorsement to the Trustee's lender's title insurance policy
increasing the amount of coverage under such policy by the amount of
disbursement and insuring against all mechanic's liens as of the date
of disbursement of the requested funds.
The Cash Collateral and Disbursement Agreement will permit advance
disbursements up to $1.0 million in the aggregate outstanding at any time,
notwithstanding the fact that not all certifications or lien releases have been
obtained or other disbursement conditions have not been so satisfied. The
conditions for such advance disbursements generally include the requirements
that the Company deliver to the Disbursement Agent and the Independent
Construction Consultant a certificate certifying:
(1) immediately prior to and after the disbursement no Default or
Event of Default will exist;
(2) the purposes to which the requested funds will be applied
following disbursement;
(3) that, after giving effect to the requested disbursement, the
remaining amounts in the line item not yet disbursed shall not exceed the
amount budgeted for such line item.
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Upon satisfaction of the disbursement conditions, the Disbursement Agent
will disburse the funds requested by the Company to the Construction Escrow
Agent and other payees.
One of the first "disbursements" to be made from the Construction
Disbursement Account is the pledge of approximately $5.5 million which, together
with a pledge of approximately $0.5 million pro rata from the Hyatt Gaming
Disbursement Account, will be used to secure a letter of credit for the benefit
of the City of Black Hawk to fund 110% of the estimated remaining costs to
excavate the land on which the Black Hawk Casino will be built. These funds,
once disbursed, will not be considered security for the payment of the notes and
will not be available to pay any interest, principal or other obligations on the
notes if there has been an Event of Default or otherwise.
Completion Reserve Account
Approximately $7.1 million of the net proceeds of the unit offering and the
issuance of the Second Mortgage Notes has been deposited in the Completion
Reserve Account and the Hyatt Gaming Completion Reserve Account. Funds and other
assets held in the Completion Reserve Account and the Hyatt Gaming Completion
Reserve Account have been pledged to the Trustee for the benefit of itself and
the Holders until disbursed in accordance with the Cash Collateral and
Disbursement Agreement. Such funds will be invested in Investment Grade
Securities by the Disbursement Agent in accordance with the Company's
instructions (subject to the Indenture) until needed from time to time to fund
cost overruns in the development, construction and opening of the Black Hawk
Casino.
To obtain funds from the Completion Reserve Account and the Hyatt Gaming
Completion Reserve Account, the Company must submit an Officer's Certificate
requesting such funds, which will include certifications that:
(1) the funds to be disbursed from the Completion Reserve Account and
the Hyatt Gaming Completion Reserve Account are reasonably necessary for
the completion of construction and commencement of operations of the Black
Hawk Casino;
(2) set forth the reasons resulting in the need for a disbursement
from the Completion Reserve Account and the Hyatt Gaming Completion Reserve
Account, and the reasons the circumstances resulting in such cost overruns
were not anticipated in preparing the Construction Disbursement Budget;
(3) set forth therein is a revised Construction Disbursement Budget
which includes the cost overruns for which such funds are required;
(4) after giving effect to the requested disbursement, the Available
Funds (as defined in the Cash Collateral and Disbursement Agreement) will
be sufficient to complete the Black Hawk Casino in accordance with the
Construction Disbursement Budget, as amended to date, on or before the
Operating Deadline;
(5) the Company reasonably believes that the Black Hawk Casino will be
operating on or prior to the Operating Deadline; and
(6) immediately prior to and after giving the effect to the
disbursement, no Default or Event of Default will exist.
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The request by the Company must include a certificate from the General
Contractor certifying certain statements by the Company in its Officer's
Certificate.
Upon the delivery from the Company to the Disbursement Agent of an
Officer's Certificate requesting a disbursement for cost overruns then incurred
in the development, construction and opening of the Black Hawk Casino, the
Disbursement Agent will disburse funds from the Completion Reserve Account and
the Hyatt Gaming Completion Reserve Account only upon the satisfaction of the
disbursement conditions set forth in the Cash Collateral and Disbursement
Agreement, which consist of the following.
(1) the confirmation by the Disbursement Agent that:
(a) the request for disbursement is in compliance with the Cash
Collateral and Disbursement Agreement, and
(b) the Disbursement Agent has not received notice that any
Default or Event of Default exists under the indenture or the Cash
Collateral and Disbursement Agreement;
(2) the delivery by the Independent Construction Consultant to the
Disbursement Agent of a certificate stating that:
(a) the Independent Construction Consultant has reviewed the
Plans then in effect and inspected the Black Hawk Casino within the
prior 30 days;
(b) the funds requested from the Completion Reserve Account and
the Hyatt Gaming Completion Reserve Account are reasonably necessary
to complete the construction and commence operation of the Black Hawk
Casino; and
(c) after giving effect to the requested disbursement, the
Available Funds (as defined in the Cash Collateral and Disbursement
Agreement) will be sufficient to complete the Black Hawk Casino in
accordance with the Construction Disbursement Budget, as amended to
date, on or before the Operating Deadline.
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Upon satisfaction of the disbursement conditions, the Disbursement Agent
will transfer the funds requested by the Company to the Construction
Disbursement Account and the Hyatt Gaming Construction Disbursement Account, and
the disbursement of such funds upon such transfer will be subject to the
conditions for disbursements from the Construction Disbursement Account and the
Hyatt Gaming Construction Disbursement Account.
Hyatt Gaming Cash Collateral Accounts
Approximately $5.9 million of the proceeds from the issuance of the Second
Mortgage Notes (net of initial disbursements made on the Closing Date) have been
deposited in the Hyatt Gaming Cash Collateral Accounts consisting of $5.3
million in the Hyatt Gaming Construction Disbursement Account and $0.6 million
in the Hyatt Gaming Completion Reserve Account. All such funds are being held in
the Hyatt Gaming Cash Collateral Accounts and are pledged to Hyatt Gaming, until
disbursed in accordance with the Cash Collateral and Disbursement Agreement. The
Trustee has a second priority lien on all of the funds in the Hyatt Gaming Cash
Collateral Accounts. Such funds have been invested in Investment Grade
Securities by the Disbursement Agent in accordance with the Company's
instructions (subject to the indenture) until needed from time to time to fund
the development, construction and opening of the Black Hawk Casino. The
Disbursement Agent will disburse funds from the Hyatt Gaming Construction
Disbursement Account and the Hyatt Gaming Completion Reserve Account at the same
time it disburses funds from the Construction Disbursement Account or the
Completion Reserve Account, respectively, for the payment of development,
construction and opening costs and cost overruns only upon the satisfaction of
the disbursement conditions set forth in the Cash Collateral and Disbursement
Agreement. All disbursements from the Hyatt Gaming Construction Disbursement
Account and the Hyatt Gaming Completion Reserve Account will be pro rata with
the disbursements from the Construction Disbursement Account and Completion
Reserve Account, respectively.
Amendment of Construction Budget and Construction Contracts
The Cash Collateral and Disbursement Agreement provides that the
Construction Disbursement Budget may be amended only upon the satisfaction of
certain conditions set forth in the Cash Collateral and Disbursement Agreement.
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To amend the Construction Disbursement Budget, the Company must submit an
Officer's Certificate which must include certifications that:
(1) the proposed amendment is reasonably necessary for the completion
of construction and commencement of operations of the Black Hawk Casino;
(2) set forth the reasons resulting in the need to amend the
Construction Disbursement Budget, and the reasons the circumstances
resulting in such amendment were not anticipated in preparing the prior
Construction Disbursement Budget;
(3) after giving effect to the requested amendment, the Available
Funds will be sufficient to pay for the anticipated construction expenses
set forth in the amended Construction Disbursement Budget, and the Company
is not aware of any other, costs or expenses to complete the Black Hawk
Casino on or prior to the operating deadline;
(4) the Company reasonably believes that the Black Hawk Casino will be
operating prior to the Operating Deadline notwithstanding the cost
overruns; and
(5) immediately prior to and after the disbursement, no Default or
Event of Default will exist.
The Construction Disbursement Budget shall be amended upon the delivery by
the Independent Construction Consultant to the Disbursement Agent of a
certificate stating that:
(1) the Independent Construction Consultant has reviewed such proposed
Construction Disbursement Budget amendment; and
(2) the Independent Construction Consultant has inspected the Black
Hawk Casino during the previous thirty (30) days and that the Independent
Construction Consultant concurs with certain of the certifications made in
the Construction Disbursement Budget amendment certification submitted by
the Company to the Disbursement Agent and the Independent Construction
Consultant.
The Cash Collateral and Disbursement Agreement also permits the Company to
amend any Construction Contracts and enter into additional Construction
Contracts by submitting an Officer's Certificate requesting such amendment to,
or addition of, any Construction Contracts, and obtaining a certificate from the
Independent Construction Consultant which certifies and confirms the Company's
certifications in the Officer's Certificate with respect to such amendment to,
or addition of, such Construction Contracts.
In addition, the Cash Collateral and Disbursement Agreement provides that
construction line items in the Construction Disbursement Budget may be reduced
only upon delivery to the Independent Construction Consultant, in form
satisfactory to the Independent Construction Consultant, of evidence that the
completion of the work represented by such line item will be completed for a
total cost less than the amount set forth in the Construction Disbursement
Budget then in effect, and that any such savings (1) are not obtained in a
manner that materially detracts from the overall value, quality or amenities of
the Black Hawk Casino, and (2) will be reallocated (by amendment to the
Construction Disbursement Budget) to other line items.
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Certifications by Independent Construction Consultant
In making any certifications described above, the Independent Construction
Consultant may rely (so long as such reliance is in good faith) upon
certificates from the Contractors, Architect and engineers involved in the
construction of the Black Hawk Casino confirming the material facts necessary
for such certifications. In addition, except to the extent the Independent
Construction Consultant has actual knowledge, the Independent Construction
Consultant will not be responsible for matters pertaining to: Historical
Architectural Review Commission, Gaming Authorities, Gaming Licenses, Liens
encumbering the Black Hawk Casino (except in connection with the
responsibilities of the Independent Construction Consultant set forth in the
Cash Collateral and Disbursement Agreement, and whether the Black Hawk Casino is
in a condition to receive customers in the ordinary course of business).
Events of Default Under the Cash Collateral and Disbursement Agreement
The Cash Collateral and Disbursement Agreement also provides that an event
of default will exist under that agreement if any of the following occurs:
(1) a Default or Event of Default occurs and is continuing under the
indenture or the Subordinated Loan Agreement;
(2) the Independent Construction Consultant or the Construction Escrow
Agent, after appropriate consultation with the Company, is unable to
deliver a certificate in connection with a requested disbursement or an
amendment to the Construction Disbursement Budget in excess of $50,000, and
such deficiency continues for a period of 30 days after notice thereof;
(3) any representation, warranty, certification or statement by the
Company in the Cash Collateral and Disbursement Agreement or any
certificate required to be delivered therein is untrue in any material
respect on the date given or made and such untruthfulness continues for a
period of 10 business days after notice thereof;
(4) if at any time the Available Funds (as defined in the Cash
Collateral and Disbursement Agreement) is less than the amount required in
the Construction Disbursement Budget to cause the Black Hawk Casino to be
Operating on or before the Operating Deadline and such deficiency continues
for a period of 30 days after notice thereof;
(5) the Company fails to deliver certain other documents necessary to
perfect the Trustee's security interest in the Cash Collateral and
Disbursement Agreement and investments therein and such failure continues
for a period of 10 days;
(6) the Company ceases to own the property or any improvements
thereon, or abandons the construction or operation of the Black Hawk
Casino;
(7) any of the material Construction Contracts shall have terminated
or otherwise ceased to be in full force and effect, except if the Company
provides written notice to the Trustee that it intend to replace such
Construction Contract (or certifies that such replacement is not
necessary), and if the Independent Construction Consultant confirms that
replacement is necessary, the Company obtain such a replacement reasonably
acceptable to the Independent Construction Consultant within 60 days after
such termination; or
(8) if the Independent Construction Consultant reasonably determines
that the Black Hawk Casino is likely not to be operating within 60 days
after the Operating Deadline.
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If an event of default exists under the Cash Collateral and Disbursement
Agreement, the Disbursement Agent will not be permitted to authorize the
disbursement of funds from the Construction Disbursement Account or the Hyatt
Gaming Construction Disbursement Account, or the Completion Reserve Account or
the Hyatt Gaming Completion Reserve Account until such event of default is
cured, provided that, subject to direction of the Trustee, the Disbursement
Agent may continue to disburse funds from the Construction Disbursement Account
or the Completion Reserve Account:
(a) if necessary to prevent the condition of the Black Hawk
Casino from deteriorating or to preserve work completed on the Black
Hawk Casino;
(b) to pay for work already completed or materials already
purchased on or prior to the date of such Default or Event of Default;
(c) to pay for retainage amounts if an event of default continues
for more than three months;
(d) if necessary to comply with any applicable law; or
(e) such disbursement is required to make interest payments.
Upon the receipt of written notice from the Trustee, the Disbursement Agent
shall, without need for authorization from the Company, deliver all funds in the
Cash Collateral Accounts and the Hyatt Gaming Cash Collateral Accounts to the
Trustee, other than the amounts to be disbursed pursuant to the preceding
paragraph.
Excess Funds in Cash Collateral Accounts
The Cash Collateral and Disbursement Agreement provides that if the Black
Hawk Casino has been operating for at least 30 days, there is no ongoing
construction (other than maintenance and repair in the ordinary course of
business and punch list items not in excess of $100,000) and there is no Default
or Event of Default, then the Disbursement Agent will disburse the funds
remaining in the Cash Collateral Accounts and the Hyatt Gaming Cash Collateral
Accounts (if any) to the Company, except for any amounts required under any
Construction Contracts for which the Construction Disbursement Agent has not
received final lien waivers and releases from such Contractors (the "Pending
Construction Contract Amounts"). Upon delivery of final lien waivers and
releases or a date-down endorsement from the Title Company insuring against such
liens, the Disbursement Agent will disburse to the Company such Pending
Construction Contract Amounts relating to such lien waivers and releases;
provided, that there is no Default or Event of Default.
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Event of Default
The indenture provides that each of the following constitutes an Event of
Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the notes;
(2) default in payment when due of the principal of or premium, if
any, on the notes;
(3) failure by the Company to comply with the provisions described
under "--Restricted Payments," "--Incurrence of Indebtedness and Issuance
of Preferred Stock," "--Asset Sales," "--Transactions with Affiliates,"
"--Liens," "--Line of Business," "--Corporate Existence,""--Limitation on
Sale and Leaseback Transactions," "--Limitation on Formation of
Subsidiaries and Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries," "--Advances to Subsidiaries," "--Payments for Consent,"
"--Additional Subsidiary Guarantees," "--Insurance," "--Limitation on Use
of Proceeds," "--Event of Loss," "--Excess Cash Purchase Offers,"
"--Articles of Incorporation," "--Approvals Under Management Agreement,"
"--Extension of Subdivision Agreement" "--Deposit of Funds into
Construction Disbursement Accounts," or "--Merger, Consolidation or Sale of
Assets."
(4) a Change of Control shall occur;
(5) failure by the Company to comply for 30 days after written notice
specifying the default with any of its other agreements in the indenture or
the notes;
(6) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the date of the indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $1.0 million or more;
(7) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days;
(8) (a) breach of any material representation or warranty set forth in
the Collateral Documents, or (b) default by the Company in the performance
of any material covenant set forth in the Collateral Documents, or (c)
repudiation by the Company of its obligations under the Collateral
Documents, or (d) the unenforceability of the Collateral Documents against
the Company for any reason, which, in the case of clauses (a) and (b)
remains uncured for a period of 30 days after written notice specifying
such breach or default;
(9) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries, or one or more
Subsidiaries, which taken together as a whole, would be considered a
Significant Subsidiary;
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(10) revocation, termination, suspension or other cessation of
effectiveness of any Gaming License which results in the cessation or
suspension of gaming operations for a period of more than 90 consecutive
days at any Gaming Facility; or
(11) the failure of the Black Hawk Casino to be Operating by the
Operating Deadline or to remain Operating thereafter, except (1) as the
hours of operation of the Black Hawk Casino may be limited by any Gaming
Authority or Gaming Law or (2) for a period of time not to exceed 30 days
during any 45-day period and not to exceed 60 days during any one-year
period; provided, however, that, in any event, there will not be an Event
of Default under this clause if the failure to remain Operating during such
period results from an Event of Loss pursuant to the terms of the
indenture.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the notes then outstanding may
declare all the notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding notes will become due and payable
without further action or notice. The Holders may not enforce the indenture or
the notes except as provided in the indenture. Subject to certain limitations,
Holders of a majority in principal amount of the notes then outstanding may
direct the Trustee in its exercise of any trust or power. In the event the
Trustee is required by the Holders or otherwise required by the indenture or the
Collateral Documents to take any action which may reasonably result in
environmental-related liability to the Trustee, the Trustee may require
additional indemnities regarding such liability. If such indemnities are not
obtained, the Trustee may resign.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the notes pursuant to the
optional redemption provisions of the indenture, an equivalent premium will also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the notes.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest or Liquidated Damages, if any, on, or the principal of, the notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
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Remedies Upon Default Under Notes
Enforcement of rights under certain of the Collateral Documents would
require that the Trustee initiate a foreclosure against the Collateral. Such
foreclosure would be subject to certain notice and other procedural limitations.
Enforcement of Security Documents
If an Event of Default occurs under the indenture, the Trustee, acting on
behalf of the Holders, may enforce its rights and remedies under the indenture
and the Collateral Documents. These remedies include foreclosing upon and
selling the Collateral, including commencing a judicial proceeding to seek a
monetary judgment against the Company and foreclosing on the Deed of Trust.
Foreclosing on the Deed of Trust can be accomplished either through the public
trustee foreclosure system or through judicial foreclosure. The public trustee
foreclosure system is largely an administrative system which utilizes the Public
Trustee of Gilpin County, Colorado, following presentation of the "original
evidence of debt," to complete the notices and advertising of the property for
sale as required by Colorado law. A judicial foreclosure can be more time
consuming and more costly to pursue than a public trustee foreclosure. Once an
order for sale is obtained in a judicial foreclosure, however, the procedure and
rights regarding cure, bidding, public sale and redemption are similar to those
in a public trustee foreclosure. These remedies, however, may be pursued
simultaneously or through a series of claims in Colorado.
In certain instances, it may be necessary to pursue a judicial foreclosure.
For example, the Deed of Trust indicates that a legended and originally executed
indenture held by the Trustee will be the "original evidence of debt" for
purposes of Colorado law. In the event that the public trustee refuses to
acknowledge such indenture as the "original evidence of debt" and, instead,
requires the delivery of all original outstanding notes, the Trustee may be
required to resort to judicial foreclosure proceedings if all such notes, or
adequate indemnities, are not delivered. Judicial foreclosure proceedings are
independent actions brought in a court of law and are governed by the
traditional rules of evidence. As a result, in a judicial foreclosure, the
Trustee, while not necessarily having to present the "original evidence of
debt," would need to prove to the court under the traditional rules of evidence
the existence and owing of the debt. In such case, the Deed of Trust and
indenture are likely to constitute evidence of the debt. Judicial foreclosure
could also be necessitated by such matters as the discovery of defects in the
Deed of Trust, issues regarding priority, challenges to title to the property,
or the existence of a dispute which may lead to the sale being enjoined or
otherwise challenged.
The Deed of Trust purports to provide the Trustee with certain rights and
remedies, such as allowing the Trustee to take possession of the encumbered
property, to collect rents immediately upon default, without the appointment of
a receiver, and to obtain the appointment of a receiver, as a matter of right,
upon ex parte application. Certain remedies, however, such as purported waivers
of rights of redemption or cure prior to default, are against public policy in
Colorado and are thus limited or unenforceable. Applicable law also may impose a
duty of good faith and fair dealing on the Trustee, which may need to be
considered in the exercise of rights and remedies on default. Certain other
provisions or remedies under the Deed of Trust may be additionally qualified or
limited by applicable law, which will not interfere with the practical
realization of the benefits of the security interest intended, provided the
Trustee acts in good faith and in a commercially reasonable manner.
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Due to the legal restrictions on the ability to engage in gaming activities
in gaming jurisdictions and the state restrictions on the retail sale of
alcoholic beverages, the Trustee may incur delays or possibly frustration in its
efforts to sell all or a portion of the Collateral. Operators of gaming
facilities and liquor licensed establishments are required to be licensed by
Gaming Authorities and Liquor Licensing Authorities, respectively, and may be
required by Gaming Authorities and Liquor Licensing Authorities to file
applications, to be investigated and to be found suitable as owners, operators
or landlords of a gaming establishment and a retail liquor licensed
establishment. Such requirements for approval by Gaming Authorities and Liquor
License Authorities may delay or preclude a sale of the Collateral to a
potential buyer at a foreclosure sale or sales. This may effectively limit the
number of potential bidders and may delay such sales, either of which could
adversely affect the sale price of the Collateral. In addition, the disposition
of Note Collateral consisting of gaming devices, including slot machines, will
require licensure of the person in possession or buyer by the applicable Gaming
Authority. Also, gaming activities must cease if the operator does not have a
right to possession of the premises and is not licensed or found suitable by
Gaming Authorities. Moreover, the gaming industry and retail liquor sale
industry could become subject to a different or additional regulations during
the term of the notes, which could further adversely affect the practical rights
and remedies that the Trustee would have upon the occurrence of an event of
default under the notes or the indenture.
In addition to being subject to gaming law and liquor law restrictions, the
Trustee's ability to foreclose upon and sell Collateral will be subject to the
procedural and other restrictions of state real estate law or the Uniform
Commercial Code. In addition, certain direct or indirect leasehold interests,
contracts and other assets may not be sold without the consent of certain third
parties.
The ability to foreclose upon and dispose of Collateral directly or
indirectly securing the notes is also likely to be significantly impaired or
delayed by applicable bankruptcy laws if a bankruptcy case were to be commenced
by or against the Company. Under applicable bankruptcy laws, the Trustee and the
Holders would be prohibited from foreclosing upon, taking possession or
disposing of the Collateral absent bankruptcy court approval. Moreover, the
Company would be permitted to retain and use Collateral as long as the Trustee
and the Holders are being provided "adequate protection" in the form of a cash
payment or periodic cash payments or an additional or replacement lien or in
some other form approved by the court in its discretion. While this requirement
is generally intended to protect the value of the security, it cannot be
predicted what form of "adequate protection" might be approved by the court in
the particular case. The court has broad discretionary powers in all these
matters, including the valuation of Collateral. In view of these considerations,
it is not possible to predict for how long payments on the notes would be
delayed following the filing of a bankruptcy case, whether or when the Trustee
could foreclose upon or take possession of or sell the Collateral or to what
extent the Holders would be compensated for any delay in payment or loss of
value of the Collateral.
After application of proceeds of any foreclosure sale to the Indebtedness,
the Trustee may be entitled to a deficiency judgment under certain
circumstances. There can be no assurance, however, that the Trustee would be
successful in obtaining any deficiency judgment, what the amount of any such
judgment if obtained might be, or that the Company would be able to satisfy any
such judgment, if obtained.
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No Personal Liability of Directors, Officers, Employees, Incorporator or
Shareholder
No director, officer, employee, incorporator or shareholder of the Company
will have any liability for any obligations of the Company under the notes or
the indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, Liquidated Damages, if any,
and interest on such notes when such payments are due from the trust
referred to below;
(2) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection with the Trustee; and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect to have
its obligations released with respect to all the covenants contained in the
Indenture, other than those covenants relating to (1) payment of the notes, (2)
maintenance of office or agency, (3) taxes, (4) limitation on status as an
investment company, (5) limitation on use of proceeds and (6) matters relating
to a merger, consolidation or sale of assets ("Covenant Defeasance") and
thereafter any omission to comply with such obligations will not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
and Liquidated Damages, if any, on the outstanding notes on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the notes are being defeased to maturity or to
a particular redemption date;
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(2) in the case of Legal Defeasance, the Company must have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (a) the Company has received
from, or there has been published by, the Internal Revenue Service a ruling
or (b) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel will confirm that, the Holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance
had not occurred;
(4) no Default or Event of Default may have occurred and be continuing
on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(6) the Company must have delivered to the Trustee an opinion of
counsel to the effect that, assuming no intervening bankruptcy of the
Company between the date of deposit and the 91st day following deposit,
after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders over other creditors of the Company with the intent
of defeating, hindering, delaying or defrauding creditors of the Company or
others; and
(8) the Company must deliver to the Trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions precedent
provided for relating to the Legal Defeasance or the Covenant Defeasance
have been complied with.
Transfer and Exchange
A Holder may transfer or exchange notes in accordance with the indenture.
The registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
indenture. The Company is not required to transfer or exchange any note selected
for redemption. Also, the Company is not required to transfer or exchange any
note for a period of 15 days before a selection of notes to be redeemed.
The registered Holder of a note will be treated as the owner of it for all
purposes.
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Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the indenture
or the notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the Holders of a majority in principal amount of the notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for notes).
Without the consent of the Holders of at least 66 2/3% in aggregate
principal amount of the notes then outstanding, an amendment or waiver may not
affect the Liens in favor of the Trustee and the Holders created under the
Collateral Documents in a manner adverse to the Holders (other than pursuant to
the release of Collateral in accordance with the provisions of the indenture and
of the applicable Collateral Documents) or release a material portion of the
Collateral.
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under "--
Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, or Liquidated Damages, if any, or interest on the notes (except
a rescission of acceleration of the notes by the Holders of at least a
majority in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the
notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of Holders to receive payments of
principal of or premium or liquidated damages, if any, or interest on the
notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under "--
Repurchase at the Option of Holders"); or
(8) make any change in the foregoing amendment and waiver provisions.
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Notwithstanding the foregoing, without the consent of any Holder, the
Company and the Trustee may amend or supplement the indenture or the notes to
cure any ambiguity, defect or inconsistency, to provide for uncertificated notes
in addition to or in place of certificated notes, to provide for the assumption
of the Company's obligations to the Holders in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders or that does not adversely affect the legal rights under
the indenture or the Collateral Documents of any such Holder or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the indenture under the Trust Indenture Act.
Concerning the Trustee
The indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs (which Event of Default will not be cured), the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any Holder, unless such Holder offers to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person,
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of such
specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or
into or becoming a Restricted Subsidiary of such specified Person, and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
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"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person will be
deemed to be control.
"Asset Sale" means
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including, without limitation, by way of a sale and leaseback)
whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $250,000, (b) for net proceeds
in excess of $250,000, or (c) that consist of or relates to any assets or
rights other than used equipment to be sold or disposed of in the ordinary
course of business, provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole, will be governed by the provisions of
the indenture described above under the provisions described"-- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset
Sale covenant) and
(2) the issuance or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of its Restricted Subsidiaries.
Notwithstanding the foregoing, the following will not be deemed to be Asset
Sales:
(1) a transfer of assets by the Company to a Wholly Owned Restricted
Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company or to
another Wholly Owned Restricted Subsidiary,
(2) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary,
(3) a Restricted Payment that is permitted by the covenant described
above under "--Restricted Payments,"
(4) the disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole governed by the covenant
described above under the caption "-- Merger, Consolidation or Sale of
Assets,"
(5) a disposition of Cash Equivalents permitted by the provisions of
the indenture; and
(6) the granting of any Permitted Lien.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
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"Basic Fee" means the Basic Fee (as defined in the Management Agreement)
payable pursuant to Section 4.2(a)(i) of the Management Agreement, as in effect
on the Closing Date.
"Bench Excavation Permit Remediation" means Site Rehabilitation Security
pursuant to Section 18-251 of the Black Municipal Code.
"Black Hawk Casino" means the pending project to develop, construct, equip
and operate the Company's casino in Black Hawk, Colorado and related amenities,
as described in this prospectus.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership, partnership interests (whether
general or limited);
(4) in the case of a limited liability company, membership interests;
and
(5) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Collateral Accounts" means collectively, the Interest Reserve
Account, the Completion Reserve Account, the Construction Disbursement Account
and the Disbursed Funds Account (as defined in the Cash Collateral and
Disbursement Agreement).
"Cash Collateral and Disbursement Agreement" means the Cash Collateral and
Disbursement Agreement among the Trustee, Hyatt Gaming, the Disbursement Agent,
the Construction Escrow Agent, the Independent Construction Consultant and the
Company, in connection with the Black Hawk Casino, dated as of the Closing Date.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
having maturities of not more than six months from the date of acquisition;
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(3) certificates of deposit and Eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or
better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition; and
(6) investment funds investing solely in securities of the types
described in clauses (2), (3), (4) or (5) above if such fund has net assets
of at least $500 million.
"Change of Control" means the occurrence of any of the following:
(1) Hyatt Gaming no longer operates the Black Hawk Casino pursuant to
the Management Agreement, as the same may be amended from time to time on
terms no less favorable to the Company or the Holders than the terms
thereof prior to such amendment;
(2) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole, to any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act) other than a Related Party; or
(3) the adoption of a plan relating to the liquidation or dissolution
of the Company; or
(4) on or prior to an Initial Public Offering, the consummation of any
transaction (including, without limitation, any merger or consolidation)
the result of which is that a "person," as such term is defined in Section
13(d)(3) of the Exchange Act, or related group, within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, other than
Related Parties, owns more than 45% of the total voting power entitled to
vote in the election of directors;
(5) after an Initial Public Offering, the acquisition in a single
transaction or in a related series of transactions, by way of merger,
consolidation or other business combination or purchase of beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any
successor provision) by any Person or related group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor
provision to either of the foregoing, including any "group" acting for the
purpose of acquiring, holding or disposing of securities within the meaning
of Rule 13d-5(b)(1) under the Exchange Act), other than Related Parties, of
more than 45% of the total voting power entitled to vote in the election of
directors; or
(6) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Directors (together with any new
board members whose election or appointment by such committee or whose
nomination for election by the shareholders of the Company was approved by
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a vote of a majority of the board members then still in office who were
either board members at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Directors then in office.
"City Improvement Bonds" means Indebtedness issued pursuant to or in
accordance with the authority of the Special Improvement District number 1998-2
of Gilpin County, Colorado for the purpose of financing public improvements to
Richman Street.
"Closing Date" means the closing date for the sale and original issuance of
the notes.
"Closing and Pre-Closing Equity Investments" means the investments made by
the stockholders of the Company on or prior to the issue date of the old notes
in the aggregate amount of approximately $11.5 million.
"Collateral" means all assets, now owned or hereafter acquired, of the
Company and its Restricted Subsidiaries, that are pledged or assigned, or
required to be pledged or assigned under the indenture or the Collateral
Documents, to the Trustee pursuant to the Collateral Documents, which will
initially include all real estate, improvements and all personal property owned
by the Company and all accounts held by or for the benefit of the Company,
together with all proceeds thereof (including, without limitation, the proceeds
of Asset Sales), in each case excluding FF&E acquired with FF&E Financing,
Gaming and Liquor Licenses, and certain other exceptions.
"Collateral Documents" means, collectively, the Deed of Trust by the
Company to the Public Trustee of the County of Gilpin, Colorado, the Security
Agreement by the Company in favor of the Trustee, the Collateral Assignments by
the Company in favor of the Trustee, the Cash Collateral and Disbursement
Agreement, the Pledge Agreement by the DPR 1992 Trust in favor of the Trustee,
the Pledge Agreement by APR 21st Century Trust in favor of the Trustee, the
Pledge and Assignment by AMR 21st Century Trust in favor of the Trustee, the
Pledge Agreement by the Company in favor of the Trustee, the Account Agreement
among the Company, the Trustee and Norwest Bank Minnesota, N.A., as securities
intermediary the Advance Disbursement Account Agreement among the Company, the
Trustee and Norwest Bank Minnesota, N.A., as securities intermediary, the
Manager Subordination Agreement, Uniform Commercial Code financing statements
and fixture filings, and any other agreements, instruments, documents, pledges
or filings that evidence, set forth or limit the Lien of the Trustee in the
Collateral.
"Completion Reserve Account" means the account to be maintained by the
Disbursement Agent and pledged to the Trustee, pursuant to the terms of the Cash
Collateral and Disbursement Agreement, into which approximately $6.5 million of
the net proceeds from the Offering will be deposited.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:
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(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income); plus
(2) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income;
plus
(3) Consolidated Interest Expense of such Person and its Restricted
Subsidiaries for such period, to the extent that any such expense was
deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) of such Person and its Restricted Subsidiaries
for such period to the extent that such depreciation and amortization were
deducted in computing such Consolidated Net Income, in each case, on a
consolidated basis and determined in accordance with GAAP; plus
(5) all other non-cash expenses (excluding any such non-cash expense
to the extent that it represents an accrual of or reserve for cash expenses
in any future period or amortization of a prepaid cash expense that was
paid in a prior period) reducing Consolidated Net Income for such period;
minus
(6) all non-cash items increasing Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation and amortization of, a Restricted Subsidiary of
the referent Person will be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations application to that Subsidiary or
its stockholders.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and
whether or not capitalized (including, without limitation, amortization or
original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net payments (if any) pursuant to Hedging Obligations);
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(2) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period; and
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries
(whether or not such Guarantee or Lien is called upon).
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting will be included only to the extent of the amount of dividends
or distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary will be excluded to
the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will be
excluded;
(4) the cumulative effect of a change in accounting principles will be
excluded; and
(5) the Net Income (but not loss) of any Unrestricted Subsidiary will
be excluded, whether or not distributed to the specified Person or one of
its Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock; minus
(3) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business)
subsequent to the date of the indenture in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person; minus
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(4) all investments as of such date in unconsolidated Subsidiaries and
in Persons that are not Subsidiaries (except, in each case, Permitted
Investments); minus
(5) all unamortized debt discount and expense and unamortized deferred
charges as of such date, all of the foregoing determined in accordance with
GAAP.
"Construction Disbursement Account" means the account, to be maintained by
the Disbursement Agent and pledged to the Trustee, pursuant to the terms of the
Cash Collateral and Disbursement Agreement, into which approximately $53.3
million of the net proceeds of the Offering will be deposited.
"Construction Disbursement Budget" means itemized schedules setting forth
on a line item basis all of the costs (including financing costs) estimated to
be incurred in connection with the financing, design, development, construction
and equipping of the Black Hawk Casino, as such schedules are delivered to the
Disbursement Agent on the Closing Date and as amended from time to time in
accordance with the terms of the Cash Collateral and Disbursement Agreement.
"Deed of Trust" means the Deed of Trust to Public Trustee, Security
Agreement, Fixture Filing and Assignment of Rents, Leases and Leasehold
Interests dated as of the Closing Date by the Company to the Public Trustee of
the County of Gilpin, Colorado in favor of the Trustee.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Disbursement Agent" means Norwest Bank Minnesota, N.A., as disbursement
agent.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders thereof have the right to require the Company to
repurchase or redeem such Capital Stock upon the occurrence of a Change of
Control or an Asset Sale shall not constitute Disqualified Stock if the terms of
such Capital Stock provide that the Company may not repurchase or redeem any
such Capital Stock pursuant to such change of control or asset sale repurchase
or redemption unless such repurchase or redemption complies with the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means a public offering (other than a public offering
registered on Form S-8 under the Securities Act) or private placement of common
Capital Stock of the Company that results in gross proceeds of at least $25.0
million to the Company.
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"Event of Loss" means, with respect to any property or asset (tangible or
intangible, real or personal), any of the following:
(1) any loss, destruction or damage of such property or asset;
(2) any institution of any proceedings for the condemnation or seizure
of such property or asset or for the exercise of any right of eminent
domain;
(3) any actual condemnation, seizure or taking by exercise of the
power of eminent domain or otherwise of such property or asset, or
confiscation of such property or asset or the requisition of the use of
such property or asset; or
(4) any settlement in lieu of clauses (2) or (3) above.
"Excess Cash Flow" means, with respect to the Company for any Operating
Year, the Consolidated Cash Flow of the Company and its Subsidiaries for such
Operating Year, minus (i) interest expense (including the interest portion of
any payments associated with Capital Lease Obligations) of the Company and its
Subsidiaries that is actually paid during such Operating Year, minus (ii) up to
$3.0 million in capital expenditures of the Company and its Subsidiaries paid to
maintain or improve the Black Hawk Casino (excluding any capital expenditures
made with the proceeds from the sale of the notes), minus (iii) up to $1.0
million in capital expenditures of the Company and its Subsidiaries paid during
such Operating Year to ensure the Black Hawk Casino complies with all applicable
laws, rules and regulations, minus (iv) principal payments made during such
Operating Year on Indebtedness permitted to be incurred pursuant to the covenant
described above under "-- Incurrence of Indebtedness and Issuance of Preferred
Stock," and minus (v) taxes of the Company and its Subsidiaries accrued with
respect to such Operating Year.
"FF&E" means furniture, fixtures or equipment used in the ordinary course
of the business of the Company and its Subsidiaries.
"FF&E Financing" means the incurrence of Indebtedness, the proceeds of
which are utilized solely to finance or refinance the acquisition of (or entry
into a capital lease by the Company or a Subsidiary with respect to) FF&E.
"Final Plans" with respect to any particular work or improvement means
Plans which (i) have received final approval from all governmental authorities
required to approve such Plans prior to completion of the work or improvements
and (ii) contain sufficient specificity to permit the completion of the work or
improvement.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Subsidiaries for such period. In the event that the Company or any of their
Subsidiaries incur, assume, guarantee or redeem any Indebtedness (other than
ordinary working capital revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period.
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In addition, for purposes of making the computation referred to above:
(1) acquisitions that have been made by the Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date will be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated Cash Flow for such
reference period will be calculated on a pro forma basis in accordance with
Regulation S-X under the Securities Act, but without giving effect to
clause (3) of the proviso set forth in the definition of Consolidated Net
Income;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, will be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, will be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, without
duplication, the sum of:
(1) the Consolidated Interest Expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued, including
Interest, but excluding amortization of debt issuance costs and issuance
discounts in connection with the issuance of the notes, but including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net of the effect of all payments made or received pursuant to Hedging
Obligations; plus
(2) the product of (a) all dividends, whether paid or accrued, whether
or not in cash, on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, other than dividend payments on Equity
Interests payable solely in Equity Interests of such Person (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary of such
Person, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, plus
(3) if such Person is the Company or any of its Restricted
Subsidiaries, the Basic Fee,
in each case, on a consolidated basis and in accordance with GAAP.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Gaming Authority" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States federal or foreign government, any state, province or any city or other
political subdivision or otherwise, and whether now or hereafter in existence,
or any officer or official thereof, including the Colorado Limited Gaming
Control Commission and any other applicable gaming regulatory authority with
authority to regulate any gaming operation (or proposed gaming operation) owned
by the Company or any of its Subsidiaries and managed or operated by Hyatt
Gaming.
"Gaming Business" means the gaming business and includes all businesses
either licensed or unlicensed by a Gaming Authority necessary for, incident to
or connected with or arising out of the operation of a gaming establishment or
facility (including developing and operating lodging, retail and restaurant
facilities, sports or entertainment facilities, transportation services or other
related activities or enterprises and any additions or improvements thereto) and
any businesses incident and useful to the gaming business, including, without
limitation, food and beverage distribution operations to the extent that they
are operated in connection with a gaming business.
"Gaming Facility" means any tangible building or other structure used or
expected to be used to enclose space in which a Gaming Business is conducted and
(i) wholly or partially owned, directly or indirectly, by the Company or any
Subsidiary or (ii) any portion or aspect of which is managed or used, or
expected to be managed or used, by the Company or a Subsidiary; provided that
the term Gaming Facility does not include any real property whether or not such
building or other structure is located thereon or adjacent thereto or any
furniture, fixtures and equipment, including gaming equipment, used in
connection with any Gaming Business.
"Gaming Law" means the gaming laws of any jurisdiction or jurisdictions to
which the Company or any of its Subsidiaries is, or may at any time after the
Closing Date, be subject.
"Gaming License" means any license, permit, franchise or other
authorization from any Gaming Authority required on the Closing Date or at any
time thereafter to own, lease, operate or otherwise conduct the Gaming Business
of the Company, including all licenses granted under the Gaming Laws of any
jurisdiction to which the Company or any of its Subsidiaries is, or may at any
time after the Closing Date, be subject.
"Gaming Redemption" means the repurchase or redemption of Capital Stock of
the Company pursuant to Section 2 of Article Fifth of the Company's First
Amended and Restated Articles of Incorporation, as in effect on the Closing
Date, as the same may be amended from time to time on terms that are no less
favorable to the Holders.
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"Gaming Redemption Indebtedness" means Indebtedness that is incurred by the
Company in connection with any Gaming Redemption and that has terms, and is
subordinated in right of payment to the prior payment in full in cash of the
notes pursuant to the terms, approved by the holders of a majority in aggregate
principal amount of the notes (which approval shall not be unreasonably
withheld).
"Government Securities" means the securities purchased by the Company upon
consummation of the offering and deposited in the Interest Reserve Account and
in which the Trustee has a first priority perfected security interest which are
comprised of (i) direct obligations of the United States of America for the
timely payment of which its full faith and credit is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and will also include a depository receipt issued
by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended), as custodian with respect to any such Government Security or a
specific payment of principal of or interest on any such Government Security
held by such custodian for the account of the holder of such depository receipt;
provided, that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Security or the specific payment of principal of or interest on the Government
Security evidenced by such depository receipt; provided, however, "Government
Securities" shall include Investment Grade Securities during the three-day
period following the Closing Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holders" means the record holders from time to time of the notes.
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"Hotel Project" means the construction of a hotel, parking structure and
related facilities of the Black Hawk Casino or on the property owned by the
Company in Black Hawk, Colorado.
"Hyatt Gaming" means Hyatt Gaming Management, Inc.
"Hyatt Gaming Cash Collateral Accounts" means collectively, the Hyatt
Completion Reserve Account and the Hyatt Construction Disbursement Account.
"Hyatt Gaming Completion Reserve Account" means the account to be
maintained by the Disbursement Agent and pledged to Hyatt Gaming, pursuant to
the terms of the Cash Collateral and Disbursement Agreement, into which
approximately $0.6 million of the proceeds of the offering of the Second
Mortgage Notes will be deposited.
"Hyatt Gaming Construction Disbursement Account" means the account, to be
maintained by the Disbursement Agent and pledged to Hyatt Gaming pursuant to the
terms of the Cash Collateral and Disbursement Agreement, into which
approximately $5.3 million of the proceeds of the offering of the Second
Mortgage Notes will be deposited.
"Incentive Fee" means the Contingent Incentive Fee (as defined in the
Management Agreement) payable pursuant to Section 4.2(a)(ii) of the Management
Agreement as in effect on the Closing Date.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property, except any such balance that constitutes an
accrued expense or trade payable or representing any Hedging Obligations, if and
to the extent any of the foregoing indebtedness (other than letters of credit,
performance or other surety bonds and Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all indebtedness secured by a Lien on any asset of such Person
(whether or not such indebtedness is assumed by such Person) and, to the extent
not otherwise included, the Guarantee by such Person of any indebtedness or
other obligations of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Independent Construction Consultant" means the independent construction
consultant to be retained in connection with the construction of the Black Hawk
Casino or any successor independent construction consultant appointed by the
Trustee pursuant to the terms of the Cash Collateral and Disbursement Agreement.
"Initial Public Offering" means a firm commitment underwritten public
Equity Offering of Capital Stock of the Company pursuant to a registration
statement filed with the Securities and Exchange Commission under the Securities
Act.
"Interest" means the fixed interest of 13% per annum payable on the notes
semi-annually in arrears on March 15 and September 15 of each year.
"Interest Reserve Account" means the account to be maintained by the
Disbursement Agent and pledged to the Trustee pursuant to the terms of the Cash
Collateral and Disbursement Agreement into which approximately $24.1 million of
the proceeds of the Offering will be deposited and used to purchase the
Government Securities.
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"Investment Grade Securities" means any Investment in (i) marketable direct
obligations issued or unconditionally guaranteed by the United States Government
or issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof, (ii) marketable direct obligations issued by any state of
the United States of America maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from both Standard & Poor's Rating Service and
Moody's Investors Service, Inc. (or any successor to either of their rating
agency businesses), (iii) commercial paper maturing no more than one year from
the date of creation thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from both Standard & Poor's Rating Service and
Moody's Investors Service, Inc. (or any successor to either of their rating
agency businesses), (iv) certificates of deposit maturing within one year from
the date of acquisition thereof, or bank accounts maintained with, commercial
banks organized under the laws of the United States of America or any state
thereof or the District of Columbia, each having combined capital and surplus of
not less than $500 million and having a rating of "A1" or better from Standard &
Poor's Rating Service or "P1" or better from Moody's Investors Service, Inc. (or
any successor to either of their rating agency businesses), or (v) money market
funds organized under the laws of the United States or any state thereof that
invest solely in any of the types of investments permitted under this
definition; provided that any such Investment Grade Securities which are
purchased with a portion of the net proceeds from the sale of the notes are
deposited in either the Construction Disbursement Account or the Completion
Reserve Account and the Trustee has a first priority perfected security interest
in such Investment Grade Securities.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations), advances (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), capital
contributions, purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that an acquisition of assets, Equity Interests
or other securities by the Company for consideration consisting of common Equity
Interests of the Company will not be deemed to be an Investment. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of the Company, the Company will be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Restricted Subsidiary not sold
or disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "-- Certain Covenants -- Restricted
Payments." The acquisition by the Company or any Restricted Subsidiary of the
Company of a Person that holds an Investment in a third Person will be deemed to
be an Investment by the Company or such Restricted Subsidiary in such third
Person in an amount equal to the fair market value of the Investment held by the
acquired Person in such third Person in an amount equal to the fair market value
of the Investment held by the acquired Person in such third Person in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "-- Certain Covenants -- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
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"Liquor License" means any license, permit, franchise or other
authorization from any Liquor Licensing Authority necessary or required on the
Closing Date or at any time thereafter to own, lease, operate or otherwise
conduct the lodging, retail, restaurant or other entertainment facilities of the
Company in the manner described in this prospectus, including all licenses
granted under the liquor licensing laws of any jurisdiction to which the Company
is, or may at any time after the Closing Date, be subject.
"Liquor Licensing Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States federal or a foreign government, any state, province or any
city or other political subdivision or otherwise, and whether now or hereafter
in existence, or any officer or official thereof, including the Colorado Liquor
Enforcement Division and the city of Black Hawk Liquor Licensing Authority and
any other applicable liquor licensing regulatory authority with authority to
regulate any liquor licensed operation (or proposed liquor licensed operation)
owned by the Company and managed or operated by Hyatt Gaming or any of its
Subsidiaries.
"LLC" means Windsor Woodmont, LLC, a Colorado limited liability company.
"Management Agreement" means the Casino Management Agreement dated as of
February 2, 2000, between the Company and Hyatt Gaming relating to the
management of the Black Hawk Casino as amended by the amendment thereto dated as
of March 15, 2000.
"Management Fees" means any amounts payable to Hyatt Gaming pursuant to
Section 4.2 of the Management Agreement, including, without limitation, the
Basic Fee and the Incentive Fee.
"Manager Subordination Agreement" means the Non-Disturbance Subordination
and Attornment Agreement dated as of the date of the indenture between Hyatt
Gaming and the Trustee and acknowledged and agreed to by the Company.
"Minimum Facilities" means, with respect to the Black Hawk Casino, a casino
which has in operation at least 1,200 slot machines and related amenities
(including a restaurant, buffet restaurant and a bar) and has parking for at
least 700 vehicles.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person, determined in accordance with GAAP, excluding,
however:
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with (a) any
Asset Sale (including, without limitation, dispositions pursuant to sale
and leaseback transactions) or (b) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the extinguishment of
any Indebtedness of such Person or any of its Restricted Subsidiaries;
(2) any extraordinary or nonrecurring gain (but not loss), together
with any related provision for taxes on such extraordinary or nonrecurring
gain (but not loss); and
(3) solely for the purpose of calculating the Fixed Charge Coverage
Ratio to determine compliance by the Company with the covenants described
under "-- Restricted Payments" and "-- Restriction on Payment of Management
Fees," pre- opening expenses as determined in accordance with GAAP incurred
by such Person in connection with the opening of the Black Hawk Casino up
to a maximum of $2.0 million.
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"Net Loss Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Event of Loss,
including, without limitation, insurance proceeds from condemnation awards or
damages awarded by any judgment, net of the direct costs in recovery of such Net
Loss Proceeds (including, without limitation, legal, accounting, appraisal and
insurance adjuster fees and any relocation expenses incurred as a result
thereof), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Event of
Loss, and any taxes paid or payable as a result thereof.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions); taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements), amounts required to be applied to the repayment of
Indebtedness (to the extent, in the case of revolving credit Indebtedness, such
Indebtedness is permanently reduced) secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP; provided, that the Trustee for the benefit of the Holders will hold a
perfected first priority security interest in such aggregate cash proceeds.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any Restricted Subsidiary (a) provides any guarantee or credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness) or (b) is directly or indirectly liable; (ii) no
default with respect to which, including any rights that the holders thereof may
have to take enforcement action against an Unrestricted Subsidiary, would
permit, upon notice, lapse of time or both, any holder of any other Indebtedness
of the Company or any Restricted Subsidiary to declare a default under such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders of such
Indebtedness have been notified in writing that they will not have any recourse
to the Equity Interests or assets of the Company or any of its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating" means, with respect to the Black Hawk Casino, the first time
that:
(1) all Gaming Licenses have been granted and have not been revoked or
suspended;
(2) all Liens (other than Liens created by the Collateral Documents or
Permitted Liens) related to the development, construction and equipping of,
and beginning operations at, the Black Hawk Casino have been discharged or,
if payment is not yet due or if such payment is contested in good faith by
the Company, sufficient funds remain in the Cash Collateral Accounts (other
than the Interest Reserve Accounts) and the Hyatt Gaming Cash Collateral
Account to discharge such Liens and the Company has taken any action
(including the institution of legal proceedings) necessary to prevent the
sale of any or all of the Black Hawk Casino or the real property on which
the Black Hawk Casino will be constructed;
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(3) the Independent Construction Consultant, the general contractor
and the architect of the Black Hawk Casino will have delivered a
certificate to the Trustee certifying that the Black Hawk Casino is
substantially complete in all material respects in accordance with the
Final Plans with respect to the Minimum Facilities and all applicable
building and other laws, ordinances and regulations;
(4) the Black Hawk Casino is in a condition (including installation of
furnishings, fixtures and equipment) to receive customers in the ordinary
course of business;
(5) the Minimum Facilities are open to the general public and
operating in accordance with all applicable laws; and
(6) a temporary certificate of occupancy has been issued for the Black
Hawk Casino by the appropriate governmental authorities.
"Operating Deadline" means December 31, 2001.
"Operating Year" means the four consecutive fiscal quarter period of the
Company beginning on the first day of the first fiscal quarter of the Company
commencing after the date that the Black Hawk Casino first becomes Operating,
and each succeeding four consecutive fiscal quarter period thereafter that
begins immediately after the last day of such initial four quarter period or any
subsequent four quarter period.
"Permitted Investments" means:
(1) any Investment in Cash Equivalents;
(2) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under "-- Repurchase at the
Option of Holders -- Asset Sales";
(3) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company;
(4) after the Black Hawk Casino is Operating, any purchases from time
to time by the Company of notes in accordance with the covenant described
under "-- Repurchase at the Option of Holders -- Excess Cash Purchase
Offer";
(5) Equity Interests, obligations or securities received in settlement
of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in the settlement of judgments; and
(6) advances to employees of the Company or any of its Restricted
Subsidiaries in the ordinary course of business to pay for reasonable
business expenses incurred by such employees.
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"Permitted Liens" means
(1) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Restricted Subsidiary
of the Company in accordance with the terms of the indenture; provided that
such Liens were not created in contemplation of such merger or
consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company;
(2) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company in accordance with
the terms of the indenture (other than materials, supplies or FF&E acquired
in connection with developing, constructing or equipping of, or commencing
operations at, the Black Hawk Casino), provided that such Liens were in
existence prior to the contemplation of such acquisition;
(3) Liens existing on the Closing Date and previously disclosed in the
Title Commitment for the Deed of Trust;
(4) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(5) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in
the ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by an appropriate process of
law, and for which a reserve or other appropriate provision, if any, as
will be required by GAAP will have been made, and, with respect to such
Liens arising in connection with the construction of the Black Hawk Casino,
there is no Default of Event of Default under the Cash Collateral and
Disbursement Agreement;
(6) Liens created pursuant to the terms of the Second Mortgage Notes
on property that constitutes, Collateral on which the Trustee has a valid
perfected and, except as otherwise permitted by the terms of the indenture
and the Collateral Documents, first priority Lien or pursuant to any
Permitted Refinancing Indebtedness incurred in accordance with the
indenture to extend, refinance, renew, replace, defease or refund the
Second Mortgage Notes, so long as such Liens do not extend to property that
was not covered by the Second Mortgage Notes.
(7) Liens on FF&E to secure Indebtedness incurred in accordance with
clause (9) of the definition of Permitted Debt described under "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock";
(8) Liens securing obligations under the indenture or the notes;
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(9) pledges or deposits in the ordinary course of business to secure
lease obligations or nondelinquent obligations under workers' compensation,
unemployment insurance or similar legislation; and
(10) zoning, easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business or assets of the
Company or any Subsidiary incurred in the ordinary course of business,
(11) Liens on the real property encumbered by the Deed of Trust to
secure Indebtedness incurred in accordance with clause (6) of the
definition of Permitted Debt set forth in "-- Certain Covenants --
Incurrence of Indebtedness and Issuance of Preferred Stock;"
(12) Liens on Collateral to secure Indebtedness incurred in accordance
with clause (15) of the definition of Permitted Debt set forth in "Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock;"
provided (a) such Liens are not senior to the Liens securing the
obligations hereunder and under the notes and the other Collateral
Documents and (b) such Indebtedness is not senior in right of payment to
such obligations;
(13) leases or subleases granted to their Persons not materially
interfering with the ordinary course of business of the Company or any of
its Restricted Subsidiaries;
(14) Liens securing Hedging Obligations incurred in accordance with
the terms of the indenture;
(15) attachment or judgment Liens not giving rise to a Default or an
Event of Default; and
(16) Liens on Capital Stock of an Unrestricted Subsidiary owned
directly by another Unrestricted Subsidiary to secure Indebtedness of such
Unrestricted Subsidiary the Capital Stock of which is being provided as a
security; provided that any such Lien may not extend to any property or
assets of the Company or any of its Restricted Subsidiaries other than such
Capital Stock.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the lesser of (a) the
original principal amount of (or accreted value, if applicable) the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus all accrued interest thereon, the amount of reasonable
expenses incurred in connection therewith and premiums incurred in
connection therewith pursuant to the original loan documents governing such
indebtedness) and (b) to the extent such Indebtedness is secured by a Lien
described in clause (6) of the definition of Permitted Liens above, the
then current fair market value of the asset so encumbered;
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(2) such Permitted Refinancing Indebtedness has a final maturity date
no earlier than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness has a final maturity date no earlier
than the final maturity date of and is subordinated in right of payment to,
the notes on terms at least as favorable to the Holders as those contained
in the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred by the Company or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, partnership, limited liability company,
corporation, trust or unincorporated organization and a government agency or a
political subdivision thereof.
"Plans" means the plans, specifications, working drawings, change orders,
correspondence and related items, which may be amended by the Company, as the
case may be, as necessary or appropriate, that collectively:
(1) provide for and detail the manner of development, construction and
equipping of the Black Hawk Casino;
(2) call for construction which will permit the Black Hawk Casino to
be Operating on or prior to the Operating Deadline, subject only to
Permitted Liens; and
(3) call for construction which will cause the Black Hawk Casino to be
Operating for a total cost consistent with its Construction Disbursement
Budget (as defined in the Cash Collateral and Disbursement Agreement) and
the line items set forth therein; and
(4) together with any amendments, are consistent with the description
of the Black Hawk Casino contained herein, and are consistent with all
governmental approvals and requirements, including, without limitation, the
Black Hawk Building Department, Historical Architecture Review Commission,
Gaming Authorities, and the Subdivision Agreement.
"Related Party" means (i) Windsor Woodmont, LLC and (ii) Daniel P.
Robinowitz, Normandy, Inc., Irving Deal and Patricia Deal and any trust formed
for the benefit of such individual, his/her spouse or his/her children or any
corporation, partnership, or limited liability company that is at least 50%
owned by such individuals.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary.
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"Second Mortgage Notes" means the $7.5 million of subordinated secured
Indebtedness issued to Hyatt Gaming on the date the notes are originally issued.
"Significant Subsidiary" means any Subsidiary that would be a significant
subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the Closing Date.
"Sponsor" means Mr. Daniel P. Robinowitz.
"Subdivision Agreement" means Public Improvements Performance Guarantee
pursuant to paragraph 11 of the Subdivision Agreement dated December 29, 1997,
between the Company and the City of Black Hawk, Colorado.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Subsidiary Intercompany Notes" means the intercompany notes senior to any
subordinated debt of, and pari passu with all existing senior Indebtedness of
the issuing Subsidiary, issued by Restricted Subsidiaries of the Company in
favor of the Company to evidence advances by the Company, in each case, in the
form attached as an exhibit to the indenture.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and
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(5) has at least one director on its board of directors that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of the Company or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary will be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "Certain Covenants -- Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary
will be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company will be in default of such
covenant. The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation will be deemed to be an incurrence of Indebtedness of such
Unrestricted Subsidiary and such designation will only be permitted if (1) such
Indebtedness is permitted under the covenant described under the caption
"Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period, (2) no Default of Event of
Default would be in existence following such designation, (3) such Subsidiary
becomes a Subsidiary Guarantor; and (4) such Subsidiary becomes a party to all
Collateral Documents.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one- twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Wholly Owned
Subsidiary of such Person that is also a Restricted Subsidiary of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
at least 90% of the outstanding Capital Stock or other ownership interests of
which will at the time be owned by such Persons by one or more Wholly Owned
Subsidiaries of such Person, or by such Person and one or more Wholly Owned
Subsidiaries of such Person.
DESCRIPTION OF WARRANTS
The warrants were issued pursuant to a warrant agreement with SunTrust
Bank, as warrant agent. The following summary of certain provisions of the
warrant agreement and the warrant registration rights agreement does not purport
to be complete and is subject to and qualified in its entirety by reference to
those agreements. Capitalized terms used in this "Description of Warrants" and
not otherwise defined herein have the meanings set forth in the warrant
agreement. A copy of the warrant agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part.
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General
Each warrant, when exercised, entitles you to initially receive, subject to
adjustments, 3.42744 fully paid and non-assessable shares of our common stock
(the "Warrant Shares") at an exercise price of $0.01 per share (the "Exercise
Price"). The number of shares of common stock issuable upon your exercise of a
warrant will be subject to adjustment in certain circumstances described below.
The warrants will entitle the holders thereof to purchase an aggregate of
342,744 shares of our common stock representing an aggregate beneficial
ownership of approximately 20% of our issued and outstanding common stock on a
fully diluted basis as described below under "-- Anti-Dilution."
You may exercise the warrants at any time. Unless earlier exercised, the
warrants will expire on March 15, 2010 (the "Expiration Date"). We will give
notice of expiration not less than 45 nor more than 90 days before the
Expiration Date to the registered holders of the then outstanding Warrants. If
we fail to give the notice when required, the Warrants will not expire until 45
days after such notice is given.
In order to exercise all or any of the warrants, you are required, in the
case of a Definitive Warrant, to surrender to the Warrant Agent the certificate
representing the warrants to be exercised, and in the case of a Global Warrant,
to comply with the Applicable Procedures set forth in the Warrant Agreement and
described under "Book-Entry, Delivery and Form," in each case with the
accompanying form of election to purchase properly completed and executed, and
to pay in full the Exercise Price for each share of common stock or other
securities issuable upon exercise of the warrants. The Exercise Price may be
paid:
(1) in cash or by certified or official bank check or by wire transfer
to an account that we have designated for that purpose;
(2) by tendering notes in a principal amount, plus accrued and unpaid
interest, at the time of tender equal to the Exercise Price (a "Note
Cashless Exercise");
(3) without the payment of cash, by reducing the number of shares of
common stock that would be obtainable upon the exercise of a warrant and
payment of the Exercise Price in cash so as to yield a number of shares of
common stock upon the exercise of the warrant equal to the product of (a)
the number of shares of common stock for which the warrant is exercisable
as of the date of exercise (if the Exercise Price were being paid in cash)
and (b) the Cashless Exercise Ratio (a "Warrant Cashless Exercise"); or
(4) by any combination of the methods identified in clauses (1), (2)
or (3).
The "Cashless Exercise Ratio" will equal a fraction, the numerator of which
is the excess of the fair value per share of common stock on the Exercise Date
over the Exercise Price per share as of the Exercise Date and the denominator of
which is the fair value per share of the common stock on the Exercise Date. When
you surrender a Warrant Certificate representing more than one warrant in
connection with your option to elect a Warrant Cashless Exercise, the number of
shares of common stock deliverable upon a warrant Cashless Exercise shall be
equal to the number of shares of common stock issuable upon the exercise of
warrants that you specify are to be exercised pursuant to a Warrant Cashless
Exercise multiplied by the Cashless Exercise Ratio. All provisions of the
Warrant Agreement shall be applicable with respect to a surrender of a Warrant
Certificate pursuant to a Warrant Cashless Exercise for less than the full
number of warrants represented thereby.
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When you surrender the Warrant Certificate and pay the Exercise Price, we
will deliver or cause to be delivered to you or upon your written order, a stock
certificate representing 3.42744 shares of common stock for each warrant
evidenced by such Warrant Certificate, subject to adjustment as described
herein. If you exercise less than all of the warrants evidenced by a Warrant
Certificate, a new Warrant Certificate will be issued to you for the remaining
number of warrants. No fractional shares of common stock will be issued upon
exercise of the warrants. At the time of exercise, we will pay you an amount in
cash equal to the fair value of any such fractional share of common stack.
If your warrants are not exercised you will not be entitled to receive
dividends, to vote, to consent, to exercise any preemptive rights or to receive
notice as a stockholder in respect of any stockholders meeting for the election
of our directors or any other purpose, or to exercise any other rights
whatsoever as a stockholder.
Certificates for warrants will be issued in fully registered form only. No
service charge will be made for registration of transfer or exchange upon
surrender of any Warrant Certificate at the office of the Warrant Agent
maintained for that purpose. We may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Warrant Certificates.
In the event a bankruptcy or reorganization is commenced by or against us,
a bankruptcy court may hold that unexercised warrants are executory contracts
that may be subject to our rejection with approval of the bankruptcy court. As a
result, you may not, even if sufficient funds are available, be entitled to
receive any consideration or may receive an amount less than you would be
entitled to receive if you had exercised your warrants before the commencement
of any such bankruptcy or reorganization.
Adjustments
The number of shares of our common stock issuable upon the exercise of the
warrants and the Exercise Price will be subject to adjustment in certain
circumstances including, without limitation:
(1) our payment of dividends and other distributions on our common
stock payable in shares of our common stock or our other equity interest;
(2) subdivisions, combinations and certain reclassifications of our
common stock;
(3) the issuance to all holders of common stock of rights, options or
warrants entitling them to subscribe for additional shares of common stock,
or of securities convertible into or exercisable or exchangeable for
additional shares of common stock at an offering price (or with an initial
conversion, exercise or exchange price plus such offering price) that is
less than the then fair value per share of common stock;
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(4) the distribution to all holders of common stock of any of our
assets (including cash), our debt securities or any rights or warrants to
purchase any securities (excluding those rights, options and warrants
referred to in clause (3) above and cash dividends and other cash
distributions from current or retained earnings);
(5) the issuance of shares of common stock for a consideration per
share that is less than the then fair value per share of common stock;
(6) the issuance of shares of common stock at less than $16.50 per
share, which amount shall be adjusted from time to time, as a result of any
stock splits, stock exchanges, stock dividends or other reclassification
(the "Unit Closing Fair Value"); and
(7) the issuance of securities convertible into or exercisable or
exchangeable for common stock or a conversion, exercise or exchange price
per share that is less than the then fair value per share of common stock
or less than the Unit Closing Fair Value.
The events described in clauses (3), (5), (6) and (7) above are subject to
certain exceptions described in the Warrant Agreement, including, without
limitation, certain bona fide public offerings and issuances of common stock
exercisable upon issuance of the Warrants, certain issuances pursuant to
employee stock incentive plans, and certain issuances in connection with an
acquisition, merger or similar transaction with a third party.
No adjustment in the number of shares of common stock issuable upon the
exercise of a warrant will be required unless the adjustment would require in an
increase or decrease of at least 1/10% in such number of shares; provided,
however, that any adjustment that is not made as a result of this paragraph will
be carried forward and taken into account in any subsequent adjustment.
In the event of a taxable distribution to holders of our common stock that
results in an adjustment to the number of shares of common stock or other
consideration for which a Warrant may be exercised, you may, in certain
circumstances, be deemed to have received a distribution subject to United
States federal income tax as a dividend.
Mergers, Consolidations, Etc.
If we consolidate or merge, or sell all or substantially all of our assets
to another Person, each warrant will thereafter become the right to receive the
kind and amount of shares of stock or other securities or property to which you
would have been entitled as a result of such consolidation, merger or sale had
the warrants been exercised immediately prior thereto. However, if (1) we
consolidate, merge or sell all or substantially all of our assets to a Person
other than an Affiliate in an arms-length transaction and, in connection
therewith, the consideration payable to the holders of common stock in exchange
for their shares is payable solely in cash or (2) we dissolve, liquidate or
wind-up, then you will be entitled to receive distributions on an equal basis
with the holders of common stock or other securities issuable upon exercise of
the warrants, as if the warrants had been exercised immediately before such
event, less the Exercise Price. Upon receipt of such payment, if any, the
warrants will expire and your rights as a holder will cease. In the case of any
such consolidation, merger or sale of assets, the surviving or acquiring person
must, and if we dissolve, liquidate or wind-up we must, deposit promptly with
the Warrant Agent the funds, if any, required to pay you. After the funds and
the surrendered Warrant Certificates are received, the Warrant Agent is required
to deliver a check in the appropriate amount (or, in the case of consideration
other than cash, such other consideration as is appropriate) to such Persons as
the Warrant Agent may be directed by you in writing.
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Amendment
Any amendment or supplement to the Warrant Agreement that has an adverse
effect on your interests will require the written consent of the holders of a
majority of the then outstanding warrants (excluding any warrants held by us or
any of our Affiliates). Notwithstanding the foregoing, from time to time, we and
the Warrant Agent, without your consent, may amend or supplement the Warrant
Agreement for certain purposes, including to cure any ambiguities, defects or
inconsistencies or to make any change that does not adversely effect your
rights. The consent of each holder of the warrants affected will be required for
any amendment pursuant to which the Exercise Price would be increased or the
number of shares of common stock issuable upon exercise of the warrants would be
decreased (other than pursuant to adjustments provided for in the Warrant
Agreement) or the exercise period with respect to the warrants would be
shortened.
Anti-Dilution
It is the intent of the Warrant Agreement to provide that, on and as of the
Closing Date of the unit offering, the number of Warrant Shares into which the
warrants are exercisable represents approximately 20% of the issued and
outstanding shares of our common stock on a fully diluted basis. For purposes of
this paragraph, the phrase "on a fully diluted basis" includes any and all
options, warrants or other rights to acquire our common equity (including
warrants issued to Hyatt Gaming, to the placement agent and to the holders of
our series B preferred stock), whether or not exercisable on the Closing Date,
but excluding all such options, warrants (other than the warrants offered in the
unit offering) or other rights to acquire our common equity at an exercise or
conversion price greater than the Exercise Price of the warrants as of the
Closing Date, as adjusted. If either (1) the issuance of the warrants on the
Closing Date causes the application of the anti-dilution provisions of any of
our other warrants, options or convertible securities outstanding as of the
Closing Date to result in an increase in the number of shares of common stock
issuable thereunder or (2) after the Closing Date the number of shares of common
stock issuable upon the exercise of then outstanding warrants, options or
convertible securities (other than any warrants issued on the Closing Date) is
increased and such additional shares of common stock, or such shares of common
stock issuable upon the exercise or conversion of such warrants, options or
convertible securities, as the case may be, will be included in the calculation
of our common stock on a fully diluted basis, unless such warrants, options or
convertible securities (other than the warrants) have a right to acquire common
stock at an exercise price or conversion price greater than the greater of the
fair value of common stock on the date of exercise or the Unit Closing Fair
Value, and the number of Warrant Shares issuable upon exercise of each warrant
offered hereby automatically will be adjusted upward by an amount sufficient to
bring the total number of Warrant Shares issuable pursuant to the Warrant
Agreement to a number representing approximately 20% of the then issued and
outstanding shares of our common stock on a fully diluted basis.
Registration Rights
We have entered into the Warrant Registration Rights Agreement with the
Warrant Agent, a copy of which has been filed as an exhibit to the registration
statement of which this prospectus is a part, which provides that the holders of
warrants will have registration rights and other rights and obligations with
respect to the warrants and Warrant Shares. The following summary of the
material provisions of the Warrant Registration Rights Agreement does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Warrant Registration Rights
Agreement.
Under the terms of the Warrant Registration Rights Agreement, we are
required to use our reasonable best efforts to cause to be declared effective
under the Securities Act, no later than March 15, 2005, the Warrant Shelf
Registration Statement to provide for the resale of the Warrant Shares. In
addition, from and after six months following the closing of a public offering
of our equity, the holders of a majority of Warrant Shares may demand one
registration of their warrant shares (a "Demand Registration"). We will be
required to file a registration statement (a "Demand Registration Statement")
within 90 days following a Demand Registration notice. We will be required to
use our reasonable best efforts to cause the Demand Registration Statement to
become effective within 120 days following the Demand Registration notice.
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We are required to use our reasonable efforts to maintain the effectiveness
of the Warrant Shelf Registration Statement and the Demand Registration
Statement until all of the warrants have been exercised and the Warrant Shares
registered thereunder have been resold. During any consecutive 365-day period
while the warrants are exercisable, we will have the ability to suspend the
availability of either such registration statement for up to two
30-consecutive-day periods (except during (1) the 30 days immediately after the
Exercise Date and (2) the 30 days immediately prior to the expiration of the
warrants) if our board of directors determines in good faith that there is a
valid purpose for the suspension and provides notice of such determination to
the holders at their addresses appearing in the register of warrants maintained
by the Warrant Agent. We are required under the terms of the Warrant
Registration Rights Agreement to pay expenses associated with either
registration.
In the event that (1) the Warrant Shelf Registration Statement has not been
declared effective by the SEC on or prior to the date specified for such
effectiveness or (2) following the date such Warrant Shelf Registration
Statement is declared effective by the SEC, it ceases to be effective without
being restored to effectiveness by amendment or otherwise within the time period
specified in the Warrant Registration Rights Agreement (each such event referred
to in clauses (1) and (2), a "Shelf Registration Default"), we will pay as
liquidated damages (the "Warrant Liquidated Damages") to each holder of warrants
or Warrant Shares an amount (the "Damage Amount") equal to $.05 per week per
warrant or Warrant Share for each week that the Shelf Registration Default
continues. The amount of Liquidated Damages will increase by an additional $.05
per week per warrant or Warrant Share with respect to subsequent 90-day periods
until all Shelf Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.25 per week per warrant or Warrant Share.
Holders of Warrant Shares also will have the right to include Warrant
Shares in any registration statement under the Securities Act filed by us for
our own account or for the account of any of our securityholders covering the
sale of our common stock, other than (a) a registration statement on Forms S-4
or S-8 or (b) a registration statement filed in connection with an offer of
securities solely to existing securityholders, for sale on the same terms and
conditions as our securities or any other selling securityholders included
therein (a "Piggy-Back Registration Statement"). In the case of a Piggy-Back
Registration Statement, the number of Warrant Shares requested to be included
therein is subject to pro rata reduction to the extent that we are advised by
the managing underwriter, if any, therefor that the total number or type of
Warrant Shares and other securities proposed to be included therein pursuant to
similar piggy-back registration rights of other holders is such as to materially
and adversely effect the success of the offering.
If we have complied with all of our obligations under the Warrant
Registration Rights Agreement with respect to a Piggy-Back Registration
Statement relating to an underwritten public offering, all holders of warrants
or Warrant Shares, upon reasonable request of the lead managing underwriter with
respect to such underwritten public offering, will be required to not sell or
otherwise dispose of any warrant or Warrant Shares owned by them for a period
not to exceed 180 days, or such fewer number of days agreed to with officers,
directors or significant shareholders, after the consummation of such
underwritten public offering.
The Warrant Registration Rights Agreement includes customary covenants on
our part and provides that we will indemnify the holders of Warrant Shares
included in any registration statement and any underwriter with respect thereto
against certain liabilities, including liabilities under the Securities Act and
the Exchange Act.
Each holder of warrants or Warrant Shares that sells such warrants or
Warrant Shares pursuant to any registration statement generally will be required
to be named as a selling securityholder in the related prospectus and to deliver
such prospectus to the purchaser, will be subject to certain of the civil
liabilities provisions under the Securities Act in connection with such sales
and will be bound by certain provisions of the Warrant Registration Rights
Agreement which are applicable to such holder (including certain indemnification
obligations). In addition, each holder of warrants or Warrant Shares will be
required to deliver information to be used in connection with any such
registration in order to have its warrants or Warrant Shares included in such
registration.
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Put Provision
Each holder of warrants has the right to require us to purchase all (but
not less than all) of its warrants upon written notice to us after the
occurrence of both: (i) the payment in full of all outstanding notes, whether at
maturity or pursuant to an earlier redemption or repurchase and (ii) the payment
in full of all outstanding second mortgage notes, whether at maturity or
pursuant to an earlier redemption or repurchase. The purchase price that we must
pay in cash for each share of common stock issuable upon the exercise of all of
such Holder's warrants shall equal:
(A)(i) (x) 6.0 multiplied by (y) our EBITDA in each case for the four
fiscal quarters immediately preceding such purchase for which internal
financial statements are available, minus (ii) our Funded Debt, minus (iii)
the liquidation preference value of any of our outstanding preferred stock
plus (iv) the cash to be received by us upon the exercise of any warrants,
options or convertible securities having an exercise price less than the
fair value of such common stock, divided by
(B) the Fully Diluted Number on the date of the purchase immediately
prior to giving effect to the purchase.
The purchase shall be made by us at any time during the 180 days following the
date of written notice to us.
"EBITDA" means, with respect to any four fiscal quarter period, our
consolidated net income (loss), determined in accordance with GAAP, excluding:
(1) any interest, taxes, depreciation and amortization and further
excluding
(2) any gain or loss realized in connection with any sale of any
assets (including, without limitation, dispositions pursuant to sale and
leaseback transactions), any gain or loss realized in connection with the
disposition of any securities by the Company or its subsidiaries, any gain
or loss realized in connection with extinguishment of any indebtedness of
the Company or its subsidiaries, and any extraordinary or nonrecurring gain
or loss.
"Funded Debt" means, as of any date of determination, any indebtedness of
us and our subsidiaries whether or not contingent, in respect of borrowed money,
or evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing capital lease obligations or the balance deferred and unpaid of
the purchase price of any property or representing any hedging obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit, performance or other surety bonds and hedging obligations) would appear
as a liability upon a balance sheet of us and our subsidiaries prepared in
accordance with GAAP and, to the extent not otherwise included, the guarantee by
us or any of our subsidiaries of any indebtedness of any other person.
The amount of any Funded Debt, as of any date of determination, shall be:
(1) the accreted value thereof, in the case of any Funded Debt issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Funded Debt.
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"Fully Diluted Number" means, as of any date of determination, the number
of shares of Common Stock outstanding as of such date plus the number of shares
of Common Stock issuable as of such date upon the exercise, conversion or
exchange of all outstanding securities that are exercisable or exchangeable for,
or convertible into, our common stock, whether or not such securities are then
exercisable, convertible or exchangeable (including, without limitation, the
warrants). Notwithstanding the foregoing, "Fully Diluted Number" shall exclude
any warrants, options or convertible securities having an exercise price in
excess of the Fair Value of the common stock issuable upon the exercise of such
warrants, options or convertible securities.
Tag-Along and Drag-Along Rights
Tag-Along Rights. In the event of any proposed transfer, sale or other
disposition (collectively, a "Transfer") of our common stock by any of the
Existing Shareholders in any transaction, or a series of related transactions
involving shares of common stock aggregating at least 15% of the total shares of
our common stock then collectively owned by the Existing Shareholders to a
Person (such other Person being hereinafter referred to as the "proposed
purchaser"), other than pursuant to an Exempt Transfer (as defined below), each
of the holders of warrants or Warrant Shares shall have the right to require the
Existing Shareholders to cause the proposed purchaser to purchase from each of
them a number of Warrant Shares (and/or warrants exercisable for a number of
Warrant Shares) owned by such holder equal to (1) the total number of shares of
common stock to be sold by the Existing Shareholders to the proposed purchaser
(collectively, the "Transfer Interests"), multiplied by (2) a fraction, the
numerator of which is the number of Warrant Shares (including the number of
Warrant Shares issuable upon the exercise of warrants) owned by such holder, and
the denominator of which is the total number of shares of common stock and
Warrant Shares (including the number of Warrant Shares issuable upon the
exercise of warrants) owned by the Existing Shareholders and by all of the
holders of Warrant Shares. Any warrants or Warrant Shares purchased from the
holders pursuant to such provision shall be paid for at the same price per
security and upon the same terms and conditions of such proposed transfer by
such Existing Shareholders; provided, that the price to be paid by the proposed
purchaser shall equal the price proposed to be paid per Warrant Share for which
such warrant is exercisable less the exercise price of such Warrant. We or the
Existing Shareholder proposing to engage in such Transfer shall notify, or cause
to be notified, each holder in writing of each such proposed Transfer at least
15 days prior to the date thereof. Such notice shall set forth (1) the name of
the proposed purchaser and the number of shares of common stock proposed to be
transferred, (2) the name and address of the proposed purchaser, (3) the
proposed amount of consideration and terms and conditions of payment offered by
such proposed purchaser (if the proposed consideration is not cash, the notice
shall describe the terms of the proposed consideration) and (4) that either the
proposed purchaser has been informed of the "tag-along right" and has agreed to
purchase warrant or Warrant Shares in accordance with the terms of the Warrant
Agreement or that the selling Existing Shareholders will make such purchase.
The tag-along right may be exercised by any holder by delivery of a written
notice to us (the "Tag-Along Notice"), within five days following his receipt
from us of the notice specified in the preceding paragraph. The Tag-Along Notice
shall state the number of warrants or Warrant Shares that such holder proposes
to include in such transfer to the proposed purchaser determined as aforesaid.
Failure to provide a Tag-Along Notice within the five-day notice period shall be
deemed to constitute an election by such holder not to exercise its tag-along
rights.
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In the event that the proposed purchaser does not purchase warrants or
Warrant Shares from the holders on the same terms and conditions as purchased
from the Existing Shareholders, then the Existing Shareholders making such
Transfer shall purchase such warrants or Warrant Shares if the Transfer occurs.
Tag-along rights shall terminate upon the effectiveness of any registration
statement filed with the SEC with respect to our common stock in an initial
Public Equity Offering or subsequent Public Equity Offering if, after giving
effect so such offering, at least 50% of our common stock on a fully diluted
basis (as defined above) would be held by persons unaffiliated with us and
without restriction on transfer under the Securities Act.
As used herein with respect to the Existing Shareholders, the term "Exempt
Transfer" shall mean a transfer by the Existing Shareholders to certain
affiliates of (including family members) such Existing Shareholders or to us.
As used herein "Existing Shareholders" shall mean our Shareholders on the
Issue Date or any Person that acquires any such shareholder's shares of common
stock pursuant to an Exempt Transfer or any of their permitted transferees.
Drag-Along Rights. In the event of any proposed Transfer of shares of
common stock by any of the Existing Shareholders in any transaction, or a series
of related transactions, involving shares of common stock aggregating at least
51% of the total common stock then outstanding on a fully diluted basis to a
Person (such other Person being hereinafter referred to as the "proposed
purchaser"), pursuant to an arms-length negotiation other than pursuant to an
Exempt Transfer (as defined above), the Existing Shareholders shall have the
right to require each holder of warrants and Warrant Shares to transfer to the
proposed purchaser a number of Warrant Shares (and/or warrants exercisable for a
number of Warrant Shares) owned by such holder equal to (1) the total number of
shares (including the number of shares of our common stock issuable upon the
exercise of warrants) owned by such holder, multiplied by (2) a fraction, the
numerator of which is the number of shares to be sold by the Existing
Shareholders to the proposed purchaser and the denominator of which is the total
number of shares then owned by the Existing Shareholders. Any warrants or
Warrant Shares purchased from the holders pursuant to such provision shall be
paid for at the same price per security and upon the same terms and conditions
of such proposed transfer by such Existing Shareholders; provided, that the
price to be paid by the proposed purchaser shall equal the price proposed to be
paid per Warrant Share for which such warrant is exercisable less the exercise
price of such warrant. We or the Existing Shareholder proposing to engage in
such Transfer shall notify, or cause to be notified, each holder in writing of
each such proposed transfer at least 15 days prior to the date thereof. Such
notice shall set forth (1) the name of the proposed purchaser and the number of
shares of common stock proposed to be transferred, (2) the name and address of
the proposed purchaser, (3) the proposed amount of consideration and terms and
conditions of payment offered by such proposed purchaser (if the proposed
consideration is not cash, the notice shall describe the terms of the proposed
consideration) and (4) that the proposed purchaser has been informed of the
"drag-along right" and has agreed to purchase the warrants or Warrant Shares in
accordance with the terms of the Warrant Agreement or that the selling Existing
Shareholders will make such purchase.
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In the event that the proposed purchaser does not purchase warrants or
Warrant Shares from the holders on the same terms and conditions as purchased
from the Existing Shareholders, then the Existing Shareholders making such
Transfer shall purchase such warrants and Warrant Shares if the Transfer occurs.
Drag-along rights shall terminate upon the effectiveness of any
registration statement filed with the SEC with respect to common stock in an
initial Public Equity Offering or subsequent Public Equity Offering if, after
giving effect to such offering, at least 50% of the Fully Diluted Number of
shares of common stock would be held by Persons unaffiliated with us and without
restriction on transfer under the Securities Act.
Regulatory Restrictions
Pursuant to the Colorado Limited Gaming Act, after we have been issued a
Colorado Gaming License by the Colorado Gaming Authorities, we may not issue
common stock to any holder of a warrant without the prior approval, licensing
and registration of such holder as a shareholder of us by the Colorado Gaming
Authorities.
Certain Covenants
Provision of Financial Statements and Reports. The Warrant Agreement
provides that, whether or not required by the rules and regulations of the SEC,
so long as any warrants or Warrant Shares are outstanding, we will furnish to
the holder of the warrants or Warrant Shares:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
we were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that
describes our financial condition and results of operations (in each case
to the extent not prohibited by the SEC's rules and regulations) and, with
respect to the annual information only, a report thereon by our certified
independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if we were required to file such reports, in each case
within the time periods specified in the SEC's rules and regulations.
Following the effectiveness of the Warrant Registration Statement
contemplated by the Warrant Agreement, if required by the rules and regulations
of the SEC, we will file a copy of all such information and reports with the SEC
for public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, we will, for so long as any warrants or Warrant Shares
remain outstanding, furnish to the holders thereof and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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Reservation of Shares. We have authorized and reserved for issuance, and
will at all times reserve and keep available, such number of shares of our
common stock as will be issuable upon the exercise of all outstanding warrants.
Such shares of our common stock, when paid for and issued, will be duly and
validly issued, fully paid and nonassessable, free of preemptive rights and free
from all taxes, liens, charges and security interests with respect to the
issuance thereof.
Initial Public Offering. We will agree not to make an initial public equity
offering of any class of capital stock (other than the class of capital stock
into which the warrants are exercisable) without adopting any amendment to the
terms of our articles of incorporation that may be necessary to provide that the
Warrant Shares are convertible into such class of capital stock on a
share-for-share or other equitable basis..
Compliance With Laws. We will also agree to comply with all applicable
laws, including the Securities Act and any applicable state securities laws, in
connection with the offer and sale of our common stock (and other securities and
property deliverable) upon exercise of the warrants.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Certain United States Federal Income Tax Considerations
The following summary describes certain United States federal income tax
consequences of the exchange of old notes for new notes and the ownership and
disposition of the new notes by holders acquiring the old notes on original
issuance at the issue price (the old notes and new notes are collectively
referred to herein as the notes). Except where noted, the summary deals only
with notes held as capital assets within the meaning of section 1221 of the
Internal Revenue Code of 1986, as amended, and does not deal with special
situations, such as those of broker-dealers, tax-exempt organizations,
individual retirement accounts and other tax deferred accounts, financial
institutions, insurance companies or persons whose functional currency is not
the U.S. dollar or who hold notes as part of a hedging or conversion
transaction, a constructive sale or a straddle. Furthermore, the discussion
below is based upon the provisions of the Internal Revenue Code, U.S. Treasury
Regulations promulgated thereunder and rulings and judicial decisions relating
thereto as of the date hereof, and such authorities may be repealed, revoked or
modified, possibly with retroactive effect, so as to result in United States
federal income tax consequences different from those discussed below. In
addition, except as otherwise indicated, the following does not consider the
effect of any applicable foreign, state, local or other tax laws or gift tax
considerations.
For purposes of this summary, a United States person is (1) a citizen or
resident of the U.S., (2) a corporation, partnership or other entity created or
organized in or under the laws of the U.S. or of any political subdivision
thereof, (3) an estate the income of which is subject to U.S. federal income
taxation regardless of its source, (4) a trust if (A) a United States court is
able to exercise primary supervision over the administration of the trust and
(B) one or more United States persons have the authority to control all
substantial decisions of the trust, and (5) a certain type of trust in existence
on August 20, 1996, which was treated as a United States person under the
Internal Revenue Code in effect immediately prior to such date and which has
made a valid election to be treated as a United States person under the Internal
Revenue Code. A U.S. holder is a beneficial owner of a note who is a United
States person. A non-U.S. holder is a beneficial owner of a note that is not a
U.S. holder.
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No rulings from the Internal revenue Service have been or will be requested with
respect to any of the tax issues discussed herein. Accordingly, there can be no
assurance that the IRS will not challenge one or more of the tax consequences
described herein.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH
REGARD TO THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR
PARTICULAR SITUATIONS, AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN
OR OTHER TAX LAWS, OR SUBSEQUENT REVISIONS THEREOF.
Tax Consequences of the Exchange Offer
The exchange of old notes for new notes in the exchange offer will not be
considered a taxable exchange for U.S. federal income tax purposes because the
new notes will not differ materially in kind or extent from the old notes and
because the exchange will occur by operation of the terms of the old notes.
Accordingly, such exchange will have no U.S. federal income tax consequences to
holders of old notes. A holder's adjusted tax basis and holding period in a new
note will be the same as that holder's adjusted tax basis and holding period,
respectively, in the old notes exchanged for the new note. However, because the
notes were issued with an original issue discount, there will be income tax
consequences associated with the new notes.
United States Federal Income Taxation of U.S. Holders
Allocation of Purchase Price Between Notes and Warrants
For U.S. federal income tax purposes, each unit issued in the unit offering
will be treated as an investment unit consisting of a note and a warrant. The
issue price of a unit will be the first price at which a substantial amount of
the units are sold (excluding sales to bond houses and brokers or similar
persons or organizations acting in the capacity of underwriters, placement agent
or wholesalers). The issue price of a unit will be allocated between the note
and the warrant based on our determination of their relative fair market values.
For this purpose, we intend to allocate, based on the purchase price for each
security, $983.58 to the note and $16.42 to the warrant. Under the original
issue discount regulations, each holder will be bound by our allocation for U.S.
federal income tax purposes, unless the holder discloses on a statement attached
to its tax return for the taxable year that includes the acquisition date of the
unit that its allocation differs from ours. No assurance can be given that the
Internal Revenue Service will accept our allocation. If our allocation were
successfully challenged by the IRS, the issue price, original issue discount
accrual on the note and gain or loss on the sale or disposition of a note or
warrant would be different from that resulting under the allocation determined
by us.
The Notes
General. The stated interest on a note generally will be included in the
income of a U.S. holder as ordinary income at the time the interest is accrued
or received in accordance with the holder's method of accounting for U.S.
federal income tax purposes. The notes will be treated as issued with original
issue discount, and each U.S. holder will be required to include in income
(regardless of whether such U.S. holder is a cash or accrual basis taxpayer) in
each year in advance of the receipt of cash payments on such notes, that portion
of the original issue discount, computed on a constant yield basis, attributable
to each day during such year on which the U.S. holder held the notes. See "--
Taxation of Original Issue Discount."
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The Amount of Original Issue Discount. The total amount of the original
issue discount with respect to each note will be equal to the excess of (1) its
stated redemption price at maturity over (2) its issue price. Under the
applicable U.S. Treasury Regulations, the stated redemption price at maturity of
each note will include all payments to be made in respect of the note, other
than payments of qualified stated interest. Qualified stated interest payments
are payments of interest which are unconditionally payable at least annually at
a qualifying rate, including a single fixed rate. The issue price of a note is
determined in the manner described under "-- Allocation of Purchase Price
Between Notes and Warrants." The semi-annual interest payments on the notes will
be "qualified stated interest."
Taxation of Original Issue Discount. A U.S. holder of a debt instrument
issued with original issue discount is required to include in gross income for
U.S. federal income tax purposes an amount equal to the sum of the daily
portions of such original issue discount for all days during the taxable year on
which the holder holds the debt instrument. The daily portions of original issue
discount required to be included in a holder's gross income in a taxable year
will be determined upon a constant yield basis by allocating to each day during
the taxable year on which the holder holds the debt instrument a pro-rata
portion of the original issue discount on such debt instrument which is
attributable to the accrual period in which such day is included. Accrual
periods with respect to a note may be of any length and may vary in length over
the term of the note as long as (1) no accrual period is longer than one year,
and (2) each scheduled payment of interest or principal on the note occurs on
either the final or first day of an accrual period. Accrual periods for the
notes will occur every six months, with the initial period ending on the date of
the first semi-annual interest payment and final accrual period expected to end
on the date of maturity. The amount of the original issue discount attributable
to each accrual period will be equal to the product of (1) the adjusted issue
price at the beginning of such accrual period, and (2) the yield to maturity of
the debt instrument (stated in a manner appropriately taking into account the
length of the accrual period). The yield to maturity is the discount rate that,
when used in computing the present value of all payments to be made under the
notes, produces an amount equal to the issue price of the notes. The adjusted
issue price of a debt instrument at the beginning of an accrual period is
defined generally as the issue price of the debt instrument, plus the aggregate
amount of original issue discount that accrued in all prior accrual periods,
less any cash payments on the debt instrument, other than payments of qualified
stated interest. Accordingly, a U.S. holder of a note will be required to
include original issue discount in gross income for U.S. federal income tax
purposes in advance of the receipt of cash in respect of such income. The amount
of original issue discount allocable to an initial short accrual period may be
computed using any reasonable method if all other accrual periods, other than a
final short accrual period, are of equal length. The amount of original issue
discount allocable to the final accrual period at maturity of the note is the
difference between (x) the amount payable at the maturity of the note (other
than a payment of qualified stated interest), and (y) the note's adjusted issue
price as of the beginning of the final accrual period. We are required to
furnish to the IRS information with respect to original issue discount borne by
the notes.
181
<PAGE>
Adjusted Tax Basis of Notes. A U.S. holder's tax basis in a note generally
will be equal to the portion of the issue price of a unit that is properly
allocable to the note, increased by the amount of original issue discount that
is included in such U.S. holder's income pursuant to the foregoing rules and
decreased by the amount of any cash payments received other than payments of
"qualified stated interest."
Liquidated Damages. The IRS could assert that the liquidated damages which
we would be obliged to pay if the registration statement relating to the notes
that we are required to file is not filed or declared effective within the
applicable time periods, or certain other actions are not taken, is a
"contingent payment." If liquidated damages are treated as a contingent payment,
the notes may be treated as contingent payment debt instruments, in which case
the timing and amount of income inclusion may be different from that discussed
in this prospectus. However, the Treasury regulations regarding debt instruments
that provide for one or more contingent payments provide that, for purposes of
determining whether a debt instrument is a contingent payment debt instrument,
remote or incidental contingencies are ignored. We believe that the possibility
of liquidated damages is remote and, accordingly, we do not intend to treat the
notes as contingent payment debt instruments.
Excess Cash Offer. The IRS could assert that the requirement that we offer
to repurchase notes with any excess cash, as described in "Description of Notes
-- Excess Cash Purchase Offer," may cause the notes to be treated as contingent
payment debt instruments, as described above. However, we intend to take the
position that the stated payment schedule is, for U.S. federal income tax
purposes, more likely than not to occur and is therefore the appropriate
schedule for determining the accrual of original issue discount on the notes.
Sale or Redemption of Notes. Unless a non-recognition provision applies,
the sale, exchange, redemption (including pursuant to an offer by us) or other
disposition of a note will be a taxable event for U.S. federal income tax
purposes. In such event, a U.S. holder will recognize capital gain or loss equal
to the difference between (1) the amount of cash, plus the fair market value of
any property received upon such sale, exchange, redemption or other taxable
disposition, and (2) the U.S. holder's adjusted tax basis in the note. Such gain
or loss will be long-term capital gain or loss if the note has been held by the
U.S. holder for more than one year at the time of the sale, exchange, redemption
or other disposition. The excess of net long-term capital gains over net
short-term capital losses is taxed at a lower rate than ordinary income for
certain non-corporate taxpayers. The distinction between capital gain or loss
and ordinary income or loss is also relevant for purposes of, among other
things, limitations on the deductibility of capital losses.
Applicable High Yield Obligations. Based upon the allocation of the unit
purchase price described above under "Allocation of Purchase Price Between Notes
and Warrants," we believe the notes will not be treated as "applicable high
yield discount obligations," or AHYDOs, for United States federal income tax
purposes. The notes will constitute AHYDOs if they (1) have a term of more than
five years, (2) have a yield to maturity equal to or greater than the sum of the
applicable federal rate at the time of issuance of the notes plus 500 basis
points, and (3) have significant original issue discount. The applicable federal
rate is an interest rate, announced monthly by the IRS, that is based on the
yield of debt obligations issued by the United States Treasury. A debt
instrument is treated as having "significant original issue discount" if the
aggregate amount that would be includable in gross income with respect to such
debt instrument for periods before the close of any accrual period ending after
the date five years after the date of issue exceeds the sum of (1) the aggregate
amount of interest to be paid in cash under the debt instrument before the close
of such accrual period, and (2) the product of the initial issue price of such
debt instrument and its yield to maturity. For purposes of determining whether a
note is an AHYDO, U.S. holders are bound by our determination of the appropriate
accrual period. Based upon the allocation of the unit purchase price described
above, we believe the notes will not have significant original issue discount,
and will therefore not be treated as AHYDOs.
182
<PAGE>
If the notes are treated as AHYDOs, (1) a portion of the original issue
discount that accrues on the notes may be treated as a dividend generally
eligible for the dividends received deduction in the case of corporate U.S.
holders, (2) we would not be entitled to deduct the "disqualified portion" of
the original issue discount that accrues on the notes and (3) we would be
allowed to deduct the remainder of the original issue discount only when we pay
amounts attributable to such original issue discount in cash. The "disqualified
portion" of the original issue discount is equal to the lesser of (x) the amount
of original issue discount, and (y) the portion of the "total return" (i.e., the
excess of all payments to be made with respect to the notes over their issue
price) with respect to the notes which represents a yield to maturity in excess
of the applicable federal rate plus 600 basis points per annum.
United States Federal Income Taxation of Non-U.S. Holders
The payment to a non-U.S. holder of interest on a note (including the
amount of any payment that is attributable to original issue discount that
accrued while such non-U.S. holder held the note) will not be subject to U.S.
federal withholding tax, pursuant to the portfolio interest exception, provided,
that (1) the non-U.S. holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of our common stock, is not a
controlled foreign corporation that is related to us within the meaning of the
Internal Revenue Code and is not a bank that acquired the notes in consideration
for an extension of credit made pursuant to a loan agreement entered into in the
ordinary course of business, and (2) either (A) the beneficial owner of the
notes certifies to us or our agent, under penalties of perjury, that it is not a
U.S. holder and provides its name and address on U.S. Treasury Form W-8 or
W-8BEN (or a suitable substitute form), or (B) a securities clearing
organization, bank or other financial institution that holds the notes on behalf
of such non-U.S. holder in the ordinary course of its trade or business
certifies under penalties of perjury that such a Form W-8 or W-8BEN (or suitable
substitute form) has been received from the beneficial owner by it, or by such a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof. Recently adopted Treasury Regulations concerning
withholding taxes that will be effective January 1, 2001 provide alternative
methods for satisfying the certification requirement described in (2) above. The
withholding regulations will generally require, in the case of notes held by a
foreign partnership, that the certificate described in (2) above be provided by
the partners rather than by the foreign partnership, and that the partnership
provide certain information, including a U.S. tax identification number.
If a non-U.S. holder cannot satisfy the requirements of the portfolio
interest exception described above, payments of interest (including the amount
of any payment that is attributable to original issue discount that accrued
while such non-U.S. holder held the note) made to such non-U.S. holder will be
subject to a 30% withholding tax, unless the beneficial owner of the note
provides us or our paying agent, as the case may be, with a properly executed
(1) Internal Revenue Service Form 1001 or W-8BEN (or successor form) claiming an
exemption from or reduction in the rate of withholding under the benefit of a
tax treaty, or (2) Internal Revenue Service Form 4224 or W-8ECI (or successor
form) stating that interest paid on the note is not subject to withholding tax
because it is effectively connected with the beneficial owner's conduct of a
trade or business in the United States.
183
<PAGE>
If a non-U.S. holder of a note is engaged in a trade or business in the
United States, and interest on the note is effectively connected with the
conduct of such trade or business, such non-U.S. holder, although exempt from
U.S. federal withholding tax (provided the non-U.S. holder files the appropriate
certification with us or our U.S. agent) will be subject to U.S. federal income
tax on such interest (including original issue discount) in the same manner as
if it were a U.S. holder. In addition, if such non-U.S. holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits (subject to adjustment) for that
taxable year unless it qualifies for a lower rate under an applicable income tax
treaty.
For purposes of the branch profits tax, interest (including original issue
discount) on such a note, and any gain recognized on the sale, exchange or other
disposition of a note or such a warrant will be included in the earnings and
profits of such non-U.S. holder.
We are likely to be a "United States real property holding corporation" for
purposes of the Internal Revenue Code. If we are, or have been at any time
within the five-year period preceding the sale or disposition of a warrant or
share of common stock by a non-U.S. holder (or the period such non-U.S. holder
held the warrant or share, if shorter), a United States real property holding
corporation for United States federal income tax purposes, the non-U.S. holder
will be subject to U.S. federal income tax on the proceeds of such disposition
as if those proceeds were effectively connected with a U.S. trade or business
conducted by that non-U.S. holder.
A corporation is a United States real property holding corporation if the
fair market value of the United States real property interests held by the
corporation is 50% or more of the aggregate fair market value of its United
States and foreign real property interests, and any other assets used or held
for use by the corporation in a trade or business. Based upon our current and
anticipated assets, we believe that we are, and are likely to remain, a United
States real property holding corporation. If, however, while we are a United
States real property holding corporation, our common stock is "regularly traded"
on an established securities market within the meaning of applicable Treasury
Regulations, then an exception from United States federal income tax on any gain
recognized from a sale or other disposition of the warrants and common stock may
apply to certain non-U.S. holders that actually or constructively own 5% or less
of our common stock.
If the United States real property holding corporation rules discussed
above do not apply, capital gain realized on the sale, redemption, retirement or
other taxable disposition of a note by a person other than a U.S. holder
generally will not be subject to U.S. federal income tax, unless (1) such gain
is effectively connected with the conduct by such holder of a trade or business
in the United States, (2) in the case of gains derived by an individual, such
individual is present in the United States for 183 days or more in the taxable
year of the disposition and certain other conditions are met, or (3) the
non-U.S. holder is subject to tax pursuant to the provisions of U.S. federal
income tax law applicable to certain expatriates.
Federal Estate Tax
Subject to applicable estate tax treaty provisions, notes held by an
individual who is not a citizen or resident of the United States for federal
estate tax purposes at the time of his or her death will not be subject to U.S.
federal estate tax, provided, that such holder did not at the time of death,
directly or indirectly, actually or constructively, own 10% or more of the total
combined voting power of all classes of our common stock entitled to vote, and
provided, that at the time of death, payments of interest on the notes would not
have been effectively connected with the conduct by such non-U.S. holder of a
trade or business within the United States.
184
<PAGE>
Information Reporting and Backup Withholding
Backup withholding and information reporting requirements may apply to
certain payments of principal, premium, if any, and interest (and accruals of
original issue discount) on a note and to the proceeds of the sale or redemption
of a note issued. We, our agent, a broker or the trustee or the paying agent
under the indenture governing the notes, as the case may be, will be required to
withhold from any payment that is subject to backup withholding a tax equal to
31% of such payment if a U.S. holder fails to furnish his taxpayer
identification number, certify that such number is correct, certify that such
holder is not subject to backup withholding, or otherwise comply with the
applicable backup withholding rules. Certain U.S. holders, including all
corporations, are not subject to backup withholding and information reporting
requirements.
Non-U.S. holders, other than corporations, may be subject to backup
withholding and information reporting requirements. However, backup withholding
and information reporting requirements do not apply to payments of portfolio
interest (including original issue discount) made by us or a paying agent to
non-U.S. holders if the certification described above under "-- United States
Federal Income Taxation of Non-U.S. Holders," is received, provided, that the
payor does not have actual knowledge that the holder is a U.S. holder. If any
payments of principal and interest are made to the beneficial owner of a note by
or through the foreign office of a foreign custodian, foreign nominee or other
foreign agent of such beneficial owner, or if the foreign office of a foreign
broker (as defined in the applicable Treasury regulations) pays the proceeds of
the sale, redemption or other disposition of a note to the seller of the note,
backup withholding and information reporting requirements will not apply.
Information reporting requirements (but not backup withholding) will apply,
however, to a payment by a foreign office of a broker that is a U.S. person or
is a foreign person that derives 50% of more of its gross income for certain
periods from the conduct of a trade or business in the United States, or that is
a controlled foreign corporation (generally, a foreign corporation controlled by
certain U.S. shareholders) with respect to the United States, unless the broker
has documentary evidence in its records that the holder is a non-U.S. holder and
certain other conditions are met, or the holder otherwise establishes an
exemption. Payment by a U.S. office of a broker is subject to both backup
withholding at a rate of 31% and information reporting, unless the holder
certifies under penalties of perjury that it is a non-U.S. holder or otherwise
establishes an exemption.
In October 1997, Treasury regulations were issued which alter the foregoing
rules in certain respects and which generally will apply to any payments in
respect of, or proceeds from the sale of a note that are made after December 31,
2000. Among other things, such regulations expand the number of foreign
intermediaries that are potentially subject to information reporting and address
certain documentary evidence requirements relating to exemption from the backup
withholding requirements. Holders should consult their tax advisers concerning
the possible application of such regulations.
Any amounts withheld under the backup withholding rules from a payment to a
holder of the notes will be allowed as a refund or a credit against such
holder's U.S. federal income tax liability, provided, that the required
information is furnished to the Internal Revenue Service.
185
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account as a result
of market-making activities or other trading activities in connection with the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where such old
notes were acquired as a result of market-making activities or other trading
activities.
We will receive no proceeds in connection with the exchange offer or any
sale of new notes by broker-dealers. New notes received by broker-dealers for
their own account pursuant to the exchange offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the new notes or a combination
of these methods of resale, at market prices prevailing at the time of resale,
at prices related to prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
that may receive compensation in the form of commissions or concessions from the
broker-dealers or the purchasers of any new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, and any profit on any resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act of 1933. The letter of
transmittal states that by acknowledging that it will deliver, and by
delivering, a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act of 1933.
LEGAL MATTERS
The validity of the new notes offered hereby will be passed upon for us by
Schlueter & Associates, P.C., Denver, Colorado.
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
186
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page(s)
-------
Windsor Woodmont, LLC (A Development Stage Enterprise):
Report of Independent Public Accountants ............................ F-2
Consolidated Balance Sheets ......................................... F-3
Consolidated Statements of Operations ............................... F-4
Consolidated Statements of Changes in Members' Deficit .............. F-5
Consolidated Statements of Cash Flows ............................... F-6
Notes to Consolidated Financial Statements .......................... F-7
Windsor Woodmont Black Hawk Resort Corp.
(A Development Stage Enterprise)
Report of Independent Public Accountants ............................. F-15
Balance Sheets ....................................................... F-16
Statements of Operations ............................................. F-17
Statements of Changes in Stockholder's Equity ........................ F-18
Statements of Cash Flows ............................................. F-19
Notes to Financial Statements ........................................ F-20
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Windsor Woodmont, LLC:
We have audited the accompanying consolidated balance sheets of Windsor
Woodmont, LLC (a Colorado limited liability company in the development stage) as
of December 31, 1999, 1998, and 1997, and the related consolidated statements of
operations, changes in members' deficit and cash flows for the years ended
December 31, 1999 and 1998, the period from inception (July 17, 1997) to
December 31, 1997 and for the period from inception (July 17, 1997) to December
31, 1999. The financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Windsor Woodmont, LLC as of
December 31, 1999, 1998, and 1997, and the results of its operations and its
cash flows for the years ended December 31, 1999 and 1998, the period from
inception (July 17, 1997) to December 31, 1997 and for the period from inception
(July 17, 1997) to December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
June 30, 2000
Las Vegas, Nevada
F-2
<PAGE>
<TABLE>
<CAPTION>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ ------------
ASSETS
<S> <C> <C> <C>
Cash ............................................................ $ 147,091 $ 13,319 $ 3,022
Funds held in escrow ............................................ 1,786,990 1,786,990 --
Prepaid interest ................................................ -- -- 507,000
Debt issuance costs ............................................. -- 280,051 700,128
Deferred financing costs ........................................ 266,870 -- --
Land and land improvements ...................................... 13,213,634 13,213,634 6,726,187
Construction in progress ........................................ 15,965,947 11,204,588 1,595,410
------------ ------------ ------------
Total assets .......................................... $ 31,380,532 $ 26,498,582 $ 9,531,747
============ ============ ============
LIABILITIES AND MEMBERS' DEFICIT
Liabilities:
Accounts/construction payable and accrued expenses ............. $ 15,293,234 $ 13,613,887 $ 1,509,631
Accrued interest ............................................... 4,312,833 886,942 126,855
Notes payable .................................................. 16,754,506 16,301,394 8,629,130
------------ ------------ ------------
Total liabilities ..................................... $ 36,360,573 $ 30,802,223 $ 10,265,616
Commitments and contingencies
Members' deficit accumulated during the development stage .......
(4,980,041) (4,303,641) (733,869)
------------ ------------ ------------
Total liabilities and members' deficit ................ $ 31,380,532 $ 26,498,582 $ 9,531,747
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
F-3
<PAGE>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999 and 1998
and for the Period from Inception (July 17, 1997)
to December 31, 1997 and for the Period from
Inception (July 17, 1997) to December 31, 1999
For the period For the period
from from
inception inception
(July 17, 1997) (July 17, 1997)
Year ended Year ended to to
December 31, December 31, December 31, December 31,
------------ ------------ ------------ ------------
1999 1998 1997 1999
------------ ------------ ------------ ------------
Revenues ................................ $ -- $ -- $ -- $ --
---------- ----------- ---------- -----------
Expenses:
General and administrative ............ 435,900 394,968 127,307 958,175
Interest expense ...................... 240,500 512,868 96,453 849,821
Write-off of previously
capitalized costs .................... -- 2,661,936 365,653 3,027,589
---------- ----------- ---------- -----------
Total expenses ................ 676,400 3,569,772 589,413 4,835,585
---------- ----------- ---------- -----------
Net loss ...................... $ (676,400) $(3,569,772) $ (589,413) $(4,835,585)
========== =========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
F-4
<PAGE>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' DEFICIT
For the Years Ended December 31, 1999 and 1998
and for the Period from Inception (July 17, 1997)
to December 31, 1997
Balance at inception (July 17, 1997) ...................... $ --
Initial capital contribution .............................. 1,000
Non-cash distribution to members .......................... (145,456)
Net loss .................................................. (589,413)
-----------
Balance at December 31, 1997 .............................. (733,869)
Net loss .................................................. (3,569,772)
-----------
Balance at December 31, 1998 .............................. (4,303,641)
Net loss .................................................. (676,400)
-----------
Balance at December 31, 1999 .............................. $(4,980,041)
===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998
and for the Period from Inception (July 17, 1997)
to December 31, 1997 and for the Period from Inception
(July 17, 1997) to December 31, 1999
For the period For the period
from inception from inception
(July 17, 1997) (July 17, 1997)
Year ended Year ended to to
December 31, December 31, December 31, December 31,
------------ ------------ ------------ ------------
1999 1998 1997 1999
------------ ------------ ------------ ------------
Cash flows from operating activities:
Net loss ........................................... $ (676,400) $ (3,569,772) $ (589,413) $ (4,835,585)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Write-off of previously
capitalized costs ............................ -- 2,661,936 365,653 3,027,589
Amortization of debt financing
costs ........................................ 280,051 864,150 140,026 1,284,227
Changes in assets and
liabilities:
Prepaid interest ............................... -- 507,000 (507,000) --
Accounts payable, accrued
expenses and accrued interest ................ 3,425,891 760,087 254,262 4,440,240
------------ ------------ ------------ ------------
Net cash provided by (used in)
operations .............................. 3,029,542 1,223,401 (336,472) 3,916,471
------------ ------------ ------------ ------------
Cash flows from investing
activities:
Funds held in escrow ............................. -- (1,786,990) -- (1,786,990)
Acquisitions of land ............................. -- (1,116,170) (3,739,997) (4,856,167)
Improvements to land ............................. -- (5,554,898) -- (5,554,898)
Construction in progress ......................... (4,761,359) (11,427,493) (1,273,213) (17,462,065)
Change in construction payables .................. 1,679,347 12,104,256 654,944 14,438,547
------------ ------------ ------------ ------------
Net cash used in investing
activities ................................ (3,082,012) (7,781,295) (4,358,266) (15,221,573)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Payment of financing costs ....................... (266,870) (444,073) (840,154) (1,551,097)
Proceeds from borrowings ......................... 465,948 12,597,493 5,536,914 18,600,355
Payments of borrowings ........................... (12,836) (5,585,229) -- (5,598,065)
Contributions from members ...................... -- -- 1,000 1,000
------------ ------------ ------------ ------------
Net cash provided by
financing activities .................... 186,242 6,568,191 4,697,760 11,452,193
------------ ------------ ------------ ------------
Net change in cash and cash
equivalents ...................................... 133,772 10,297 3,022 147,091
Cash and cash equivalents,
beginning of period .............................. 13,319 3,022 -- --
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period ...........
$ 147,091 $ 13,319 $ 3,022 $ 147,091
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
F-6
</TABLE>
<PAGE>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
Windsor Woodmont, LLC (the "Company") was formed as a limited liability
company, under the laws of the state of Colorado, on July 17, 1997. The
Company's principal business activities since inception have been the
acquisition of land and related development activities in connection with the
development of an integrated limited stakes gaming casino, entertainment and
parking facility (the "Project") in Black Hawk, Colorado. The Project is
expected to be completed in 2001. As operations of the Project have not begun,
the Company is reporting as a development stage enterprise.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Windsor Woodmont Black Hawk Resort Corp.
(formerly St. Moritz Black Hawk Resort Corp) a Colorado Corporation ("Resort
Corp.") which was formed January 9, 1998. Resort Corp. has no significant assets
or liabilities and has no operating activities. In connection with the Private
Placement and other financing transactions described in Note 2, the Company
contributed all of its assets and liabilities to Resort Corp. Resort Corp. will
complete the development of the Project, and upon completion, will operate the
Project, which will be managed by Hyatt Gaming Management, Inc. ("Hyatt
Gaming"). Following the Private Placement and other financing transactions, the
Company owns approximately 37% of the outstanding common stock of Resort Corp.
(prior to the conversion of any warrants issued in the Private Placement and
financing transactions). Subsequently, the Company transferred the majority of
these shares of common stock to its Members and to other individuals.
Summary of Significant Accounting Policies:
Land and Land Improvements and Construction in Progress
Costs related directly to the purchase of land and land improvements,
comprised mainly of excavation costs on the land on which the Project will be
built, are capitalized. Construction in progress includes all costs directly
attributable to the Project and, in management's opinion, have continuing value
to the Project. When previously capitalized costs are determined to have no
further value to the Project, such costs are written off in the period in which
the determination is made.
During 1998 and 1997, management determined that $2,661,936 and $365,653,
respectively, in previously capitalized costs had no further value to the
Project and, accordingly, expensed those items.
Capitalized Interest
The Company capitalizes interest expense as part of the cost of the Project
during the construction period. During the years ended December 31, 1999 and
1998 and the period from inception (July 17, 1997) to December 31, 1997,
$3,435,443, $2,258,202 and $387,829 of interest expense was capitalized,
respectively.
Funds Held in Escrow
Funds held in escrow represents cash held by the City of Black Hawk under
various bond agreements associated with the construction of the Project. To the
extent Resort Corp. does not complete the improvements required by the bond
agreements, the City of Black Hawk can utilize the funds to complete the
improvements.
F-7
<PAGE>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
As the Company is a limited liability company, no federal income taxes are
payable by the Company and none have been provided in the accompanying
consolidated financial statements. The Members are to include their respective
shares of the Company's taxable income or loss in their individual income tax
returns.
Deferred Financing Costs
The costs of issuing long-term debt have been capitalized and are being
amortized using the effective interest rate method over the term of the related
debt.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities, and related revenues and
expenses. Actual results could differ from those estimates.
2. PRIVATE PLACEMENT
On March 14, 2000, Resort Corp. successfully completed the issuance of $100
million in first mortgage notes in a Private Placement (the "Private Placement
Notes") which are senior secured obligations collateralized by substantially all
of Resort Corp.'s assets. The Private Placement Notes bear interest at 13% per
annum, are payable semi-annually, mature in 2005 and contain numerous covenants,
including limitations on the payment of dividends on common stock, the
incurrence of additional indebtedness and the issuance of additional preferred
stock. The Private Placement Notes also have warrants attached that will entitle
the holders to purchase, at $0.01 per share, common stock of Resort Corp. that
represent, in the aggregate, 20% of the fully diluted common stock of Resort
Corp. The warrants were valued at $1,640,000, are immediately exercisable and
expire in 10 years. Holders of the warrants have the right to put the warrants
to Resort Corp. for cash at any time after both (1) the date on which the notes
issued in the Private Placement are paid in full, whether at maturity or
pursuant to redemption or repurchase, and (2) the date on which the second
mortgage notes issued to Hyatt Gaming are paid in full, whether at maturity or
pursuant to redemption or repurchase. The price Resort Corp. will pay per
warrant will be based on a fully diluted, per share total enterprise value for
Resort Corp. equal to (1)(a) 6.0 multiplied by earnings before interest, taxes,
depreciation, and amortization in each case of the four fiscal quarters
immediately preceding such purchase for which internal financial statements are
available, minus (b) funded debt minus (c) the liquidation preference value of
any outstanding preferred stock, plus (d) the cash to be received upon the
exercise of any warrants, options or convertible securities having an exercise
price less than the fair value of such common stock, divided by (2) the number
of shares of common stock outstanding on a fully diluted basis. The holders of
the warrants also have certain tag along and drag along rights, as defined. Net
proceeds from the Private Placement, after offering expenses, was approximately
$94.8 million. The net proceeds were used to continue to fund the development of
the project and satisfy notes payable with Kennedy Funding, Inc., National
Westminster, National Westminster Capital Markets, Mohogany Ridge LP, American
Equity Exchange, Midcap, S-O Family Partnership, Miner's Mesa and Dan Robinowitz
(see Note 3) in addition to certain accounts payable and accrued expenses that
were significantly past due at December 31, 1999.
Upon consummation of the Private Placement, the following financing
transactions also occurred:
o Resort Corp. amended its articles of incorporation whereby its
authorized stock now consists of 10,000,000 shares of common stock,
$0.01 par value per share, and 1,000,000 shares of preferred stock,
$0.01 par value per share. The shares of preferred stock may be issued
from time to time in one or more series.
F-8
<PAGE>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o Resort Corp. issued 29,000 shares of its preferred stock as "Series A"
preferred stock and 30,000 shares of its preferred stock as "Series B"
preferred stock. The holders of both the Series A and Series B
preferred stock have no voting rights. The Series A preferred stock is
non-convertible, accrues cumulative, non-compounding dividends at the
rate of 11% per annum and has a liquidation preference of $100 per
share. Holders of the Series A preferred stock may redeem their shares
at a price per share equal to their liquidation preference plus
accrued and unpaid dividends thereon at any time after the later of
(1) one year after the notes issued in the Private Placement are paid
in full, whether at maturity or upon redemption or repurchase and (2)
one year after the second mortgage notes issued to Hyatt Gaming are
paid in full, whether at maturity or upon redemption or repurchase.
The Series B preferred stock is non-convertible, accrues dividends on
a cumulative basis, compounding quarterly at a rate of 7% per annum
and has a liquidation preference of $100 per share. Holders of the
Series B preferred stock may redeem their shares at a price equal to
their liquidation preference plus accrued and unpaid dividends thereon
at March 15, 2015;
o The Company contributed all of its assets and liabilities to Resort
Corp. In exchange the Company received 368,964 shares of common stock
of Resort Corp. The Company has allocated 50,000 of the shares it
received in satisfaction of $825,000 of accrued salaries. Other shares
were transferred to the Members and to certain individuals. Such
shares represent approximately 37% of the outstanding common stock of
Resort Corp.;
o Notes payable in the amount of $7.4 million were converted to 383,461
shares of common stock of Resort Corp. and accrued interest in the
amount of approximately $1.5 million was forgiven;
o Resort Corp. obtained approximately $4.0 million in proceeds from the
sale of 247,575 shares of its common stock;
o As described above, Resort Corp. issued (a) $2.9 million of its 11%
mandatorily redeemable Series A preferred stock in satisfaction of
certain accrued salaries and other project development costs ($1.7
million) and accounts payable ($1.2 million);
o As described above, Resort Corp. issued $3.0 million of its 7%
mandatorily redeemable Series B preferred stock in exchange for cash.
The Series B preferred stock was sold with warrants valued at
$1,368,500 that entitle the warrant holders to purchase, at an
exercise price of $0.01 per share, common stock of Resort Corp. that
represent, in the aggregate, 15% of the fully diluted common stock of
Resort Corp. These warrants have substantially similar rights as the
warrants issued in the Private Placement;
o Resort Corp. obtained approximately $7.5 million in proceeds from the
issuance of second mortgage notes and warrants to Hyatt Gaming. The
warrants attached to the Hyatt Gaming second mortgage notes were
assigned a value of $160,000 and entitles the warrant holders to
purchase, at $0.01 per share, common stock of Resort Corp. that
represent, in the aggregate, 1.98% of the fully diluted common stock
of Resort Corp. These warrants have the same rights as the warrants
issued in the Private Placement;
o U.S. Bancorp Libra, as placement agent, received warrants with a value
of $383,000 that entitle the warrant holders to purchase, at $0.01 per
share, common stock of Resort Corp. that represent, in the aggregate,
4.67% of the fully diluted common stock of Resort Corp. These warrants
have the same rights as the warrants issued in the Private Placement.
The value assigned to the warrants issued in the Private Placement and
other financing transactions described above were determined by the
placement agent to Resort Corp.
F-9
<PAGE>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. NOTES PAYABLE
Notes payable consist of notes issued primarily for the purchase of land
and to fund certain other costs of the Project incurred through December 31,
1999. The notes issued for the purchase of the land are collateralized by the
land to which they relate. The notes issued to fund the development of the
project are not collateralized. As of December 31, 1999, the Company was in
default on substantially all outstanding note agreements. Accordingly, interest
was accruing at default rates and substantially all outstanding debt obligations
were immediately due, unless noted otherwise. All of these existing notes
payable and related accrued interest were extinguished in March 2000 with
proceeds from the Private Placement or through the other financing transactions
described in Note 2.
Notes payable consisted of the following at December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
Principal Principal Principal
Balance at Balance at Balance at
Interest December 31, December 31, December 31,
Issuer Maturity Date Rate(2) 1999 1998 1997
------ ------------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Related Parties
Normandy, Inc. Demand 10% $3,217,735 $3,164,623 $1,642,130
J. Dauderman Past Due 15% 1,600,000 1,600,000 --
Robert W. Martin Past Due (3) 433,333 333,333 --
Robert E. Martin Past Due (3) 433,333 333,333
J. Michael Martin Past Due (3) 433,334 333,334
P. Steelman Past Due 15% 950,000 950,000 --
P. Deal Demand 10% 265,000 265,000 265,000
R. Folsom March 31, 2000 10%(4) 100,000 -- --
D. Robinowitz Demand 10% 50,000 50,000 --
--------- --------- --
Sub-total 7,482,735 7,029,623 1,907,130
--------- --------- ---------
Other Notes
Kennedy Funding Inc. Past Due 36% 5,400,000 5,400,000 5,400,000
National Westminster Past Due (5) 2,686,771 2,686,771 --
Nat West Capital Markets Past Due (5) 650,000 650,000 --
Mahogany Ridge LP (1) 8.5% 285,000 285,000 265,000
American Equity -- 21% -- -- 331,000
Exchange
Midcap -- 21% -- -- 331,000
S-O Family Partnership -- 15% -- -- 395,000
Miner's Mesa None (6) 250,000 250,000 --
---------- --------- ---------
Sub-total 9,271,771 9,271,771 6,722,000
---------- --------- ---------
TOTAL $16,754,506 $16,301,394 $8,629,130
----------- ----------- ----------
</TABLE>
----------
(1) The principal balance is represented by two mortgage notes. One of the
notes in the amount of $250,000 is due July 16, 2002 and the other note in
the amount of $35,000 is due June 1, 2003.
(2) For those notes which are past due, the interest rate presented is default
interest rates as determined in accordance with the terms of the note
agreements.
F-10
<PAGE>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Two notes in the amount of $166,667, each bear interest in accordance with
the terms discussed in item (5). Notes in the amount of $100,000 bear
interest at 9% per annum.
(4) If the note is not satisfied by March 31, 2000, the interest rate increases
to 15%.
(5) Default rate of LIBOR + 9.5%. Interest rate at December 31, 1999 and 1998
was 15.88% and 14.75%, respectively.
(6) No stated rate of interest.
Upon completion of the Private Placement by Resort Corp., described in Note
2, certain of the above notes payable were converted into common stock of Resort
Corp. subsequent to year end as discussed below:
Normandy, Inc.-- Subsequent to December 31, 1999, the principal amount of
$3.2 million at December 31, 1999 was converted into 157,584 shares of common
stock. Accrued interest in the amount of approximately $581,000 was forgiven;
J. Dauderman-- Subsequent to December 31, 1999, the principal amount of
$1.6 million at December 31, 1999 was converted into 78,792 shares of common
stock. Accrued interest in the amount of approximately $407,000 was forgiven;
Robert W. Martin -- Subsequent to December 31, 1999, the principal amount
of $433,333 at December 31, 1999 was converted into 26,060 shares of common
stock. Accrued interest in the amount of approximately $72,000 was forgiven;
Robert E. Martin -- Subsequent to December 31, 1999, the principal amount
of $433,333 at December 31, 1999 was converted into 26,060 shares of common
stock. Accrued interest in the amount of approximately $72,000 was forgiven;
J. Michael Martin-- Subsequent to December 31, 1999, the principal amount
of $433,334 at December 31, 1999 was converted into 26,060 shares of common
stock. Accrued interest in the amount of approximately $72,000 was forgiven;
P. Steelman-- Subsequent to December 31, 1999, the principal amount of
$950,000 at December 31, 1999 was converted into 46,783 shares of common stock.
Accrued interest in the amount of approximately $209,000 was forgiven;
P. Deal-- Subsequent to December 31, 1999, the principal amount of $265,000
at December 31, 1999 was converted into 16,061 shares of common stock. Accrued
interest in the amount of approximately $95,000 was forgiven; and,
R. Folsom-- Subsequent to December 31, 1999, the principal amount of
$100,000 was converted into 6,061 shares of common stock.
The remaining outstanding debt obligations in the amount of approximately
$9.3 million and accrued interest in the amount of approximately $2.7 million
was paid in cash with the proceeds of the Private Placement Notes. An additional
amount of accrued interest of approximately $150,000 was forgiven upon payment
of the outstanding principal.
F-11
<PAGE>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. MEMBERS' EQUITY
At December 31, 1999, the Company is owned 50% by DPR 1992 Trust, in which
Daniel P. Robinowitz, the Company's Managing Member, is the trustee and sole
beneficiary, 25% by Normandy, Inc, and 25%, by Patricia Deal. Irving C. Deal, a
manager of the Company, is also the Chief Executive Officer of Normandy, Inc.
and the husband of Patricia Deal.
Prior to the formation of the Company, Normandy, Inc. incurred certain
costs related to the Project. During 1997, the assets obtained and liabilities
incurred by Normandy, Inc. were contributed to the Company. Liabilities assumed
exceeded assets contributed by $145,456, and such amount is reflected in the
consolidated financial statements as a non-cash distribution to Members of the
Company.
In connection with the Company's contribution of all its assets and
liabilities to Resort Corp. described in Note 2, the Members of the Company
agreed to a disproportionate distribution of shares whereby the DPR 1992 Trust
received 27,500 shares in excess of its membership interest. No costs related to
this transaction are reflected in these financial statements.
Net losses of the Company are allocated to the Members in accordance with
the terms of the operating agreement.
5. COMMITMENTS AND CONTINGENCIES
Gaming Regulation Licensing
Resort Corp.'s ability to conduct gaming operations in the State of
Colorado is subject to the licensability and qualifications of Resort Corp. and
its common stockholders, and may be subject to the licensability and
qualifications of the holders of its Series B preferred stock. There is no
guarantee that the Colorado Limited Gaming Control Commission will grant Resort
Corp. a gaming license. Additionally, upon receipt of a gaming license, such
licensing and qualifications will be reviewed periodically by the gaming
authorities in Colorado and there are no guarantees such license will be
renewed.
Management Agreement
On February 2, 2000, Resort Corp. entered into a management agreement which
was amended on March 14, 2000 (the "Management Agreement") with Hyatt Gaming,
which, in exchange for a fee, will manage the casino operations. The management
fee will be equal to a basic fee of 3% of the adjusted gross receipts and an
incentive fee equal to 5% of the earnings before interest, taxes, depreciation
and amortization for the appropriate fiscal year. The incentive fee shall be
paid only to the extent earnings before interest, taxes, depreciation and
amortization is positive and will be subordinated in payment to the notes issued
in the Private Placement. The Management Agreement can be terminated by either
party upon delivery of written notice if certain events transpire.
Success Fee
Resort Corp. has agreed to pay Daniel P. Robinowitz, Co-Chairman of the
Board, President and Chief Executive Officer of Resort Corp., a "success fee" of
up to $800,000. The success fee will be earned when construction of the Project
is complete and the casino is open, and will only be paid if funds, as defined,
are available. No costs have been accrued under this agreement as of December
31, 1999.
Resort Corp paid Timothy G. Rose, an Executive Vice President of Resort
Corp., a "success fee" in the amount of $250,000. This success fee was earned
upon the closing of the Private Placement and was recorded during the quarter
ended March 31, 2000.
F-12
<PAGE>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Construction Risks
Any construction project entails significant construction risks, including,
without limitation, cost overruns, delays in receipt of governmental approvals,
shortages of material or skilled labor, labor disputes, unforeseen environmental
or engineering problems, work stoppages, fire and other natural disasters,
construction scheduling problems and weather interferences, any of which, if it
occurred, could delay construction or result in substantial increase in costs to
the Project.
Environmental Issues
The Project will be located in a 400-square mile area that has been
designated by the United States Environmental Protection Agency (EPA) as the
Clear Creek/Central City National Priorities List Superfund Site under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
as a result of hazardous substance contamination caused by historical mining
activity in Black Hawk. This is a broad national priorities list site, within
which the EPA has identified several priority areas of contamination from
historical mining activities, including draining mines and mine dumps, for
active investigation and/or remediation. To date, the EPA has not identified the
Project site as being within a priority area nor has it identified contamination
on or from the project site to require remediation.
We have been informed that the Superfund Division of the Colorado
Department of Public Health and the Environment (CDPHE), working with the EPA,
has sampled surface water in or near North Clear Creek near where a portion of
the project site called Silver Gulch discharges surface water into North Clear
Creek. We have been informed that based on the results of those samples, the EPA
and the Colorado Superfund Division have expressed preliminary concern that soil
and rock associated with historic mining operations in Silver Gulch may be a
source of contamination to North Clear Creek. Even minor contamination could
form a basis for the EPA or CDPHE to require owners and operators of properties
which have been the source of contamination to investigate and remediate
contamination on or from their property or to reimburse costs incurred by the
government in connection with such remediation. The Project site could be among
the properties suspected of being a source of contamination. If investigation or
remediation of the project site were required, the Project schedule could be
delayed and costs could increase.
Construction Agreement
The Company entered into a construction agreement with PCL Construction
Services, Inc. ("PCL"), which has been assigned to Resort Corp. whereby PCL will
build the Project. Subject to certain conditions, PCL has guaranteed that the
cost of the Project will not exceed $42.2 million. No costs have been incurred
under this contract as of December 31, 1999.
Excavation Agreement
The Company entered into an excavation agreement, which has been assigned
to Resort Corp. in which all excavation for the Project will be performed by
D.H. Blattner & Sons, Inc. for $8.7 million. Costs in the amount of
approximately $4.7 million have been incurred under this contract as of December
31, 1999. This is not a maximum price contract.
Legal Proceedings
Due to the Company's delay in satisfying its outstanding debt obligations
at December 31, 1999, liens were placed against substantially all of the
Company's assets. A portion of the proceeds from the Private Placement (see Note
2) were used to satisfy all such outstanding obligations.
F-13
<PAGE>
WINDSOR WOODMONT, LLC
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid in 1998 and 1997 was $639,833, and $724,402, respectively. No
interest was paid during 1999.
Normandy, Inc. contributed assets with a book value of approximately $2.4
million, of which approximately $1.7 million related to land, and liabilities
with a book value of approximately $2.5 million, to the Company upon its
formation. The excess of liabilities assumed over assets acquired is reflected
as a non-cash distribution to the Members of the Company.
In 1998 and 1997, the Company acquired land in exchange for notes payable
in the amount of $660,000 and $1,322,000, respectively.
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of
Windsor Woodmont Black Hawk Resort Corp.:
We have audited the accompanying balance sheets of Windsor Woodmont Black
Hawk Resort Corp. (a Colorado corporation in the development stage) as of
December 31, 1999 and 1998, and the related statements of operations, changes in
stockholder's equity and cash flows for the year ended December 31, 1999, the
period from inception (January 9, 1998) to December 1998 and the period from
inception (January 9, 1998) to December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Windsor Woodmont Black Hawk
Resort Corp. as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for the year ended December 31, 1999, the period from
inception (January 9, 1998) to December 31, 1998, and for the period from
inception (January 9, 1998) to December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen LLP
June 30, 2000
Las Vegas, Nevada
F-15
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A Development Stage Enterprise)
BALANCE SHEETS
As of December 31, 1999 and 1998
1999 1998
---- ----
ASSETS
Cash ............................................... $ 584 $ 808
----- -----
Total assets ............................. $ 584 $ 808
===== =====
LIABILITIES AND STOCKHOLDER'S EQUITY
Common stock, $0.01 par value, 10,000
authorized, 1,000 shares
issued and outstanding .......................... $ 10 $ 10
Additional paid-in-capital ......................... 990 990
Deficit accumulated during
the development stage ........................... (416) (192)
----- -----
$ 584 $ 808
===== =====
The accompanying notes are an integral part of these
financial statements.
F-16
<PAGE>
<TABLE>
<CAPTION>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1999, for the Period from
Inception (January 9, 1998) to December 31, 1998
and for the Period from Inception (January 9, 1998) to
December 31, 1999
For the period from For the period from
inception inception
(January 9, 1998) (January 9, 1998)
Year ended to to
December 31, December 31, December 31,
------------ ------------ ------------
1999 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues: ................................ $ -- $ -- $ --
----- ----- -----
Expenses:
Bank service charges ................... 224 192 416
----- ----- -----
Total expenses ................. 224 192 416
----- ----- -----
Net loss ....................... $(224) $(192) $(416)
===== ===== =====
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
For the Year Ended December 31, 1999 and for the Period
from Inception (January 9, 1998) to December 31, 1998
Deficit
Accumulated
Common Additional During the Total
Stock Paid-in- Development Stockholder's
Shares Amount Capital Stage Equity
------ ------ ------- ----- ------
Balance at Inception (January 9, 1998) ...... -- $ -- $ -- $ -- $ --
Capital contribution ........................ 1,000 10 990 -- 1,000
Net loss .................................... -- -- -- (192) (192)
------- ------- ------- ------- -------
Balance at December 31, 1998 ............... 1,000 10 990 (192) 808
Net loss .................................... -- -- -- (224) (224)
------- ------- ------- ------- -------
Balance at December 31, 1999 ............... 1,000 $ 10 $ 990 $ (416) $ 584
======= ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1999, for the Period from
Inception (January 9, 1998) to December 31, 1998 and
for the Period from Inception (January 9, 1998) to
December 31, 1999
For the Period from
inception
(January 9, 1998)
Year Ended To
December 31, December 31,
----------- ------------
1999 1998 1999
---- ---- ----
Cash flows from operating activities:
Net loss ................................................. $ (224) $ (192) $ (416)
------- ------- -------
Net cash used in operating activities .................... (224) (192) (416)
------- ------- -------
Cash flows from financing activities:
Capital contribution ..................................... -- 1,000 1,000
------- ------- -------
Net cash provided by financing activities ................ -- 1,000 1,000
------- ------- -------
Net (decrease) increase in cash .......................... (224) 808 584
Cash, beginning of period ................................ 808 -- --
------- ------- -------
Cash, end of period ...................................... $ 584 $ 808 $ 584
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-19
</TABLE>
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Windsor Woodmont Black Hawk Resort Corp. (formerly St. Moritz Black Hawk
Resort Corp.), a Colorado corporation (the "Company"), was incorporated on
January 9, 1998 for the purpose of developing an integrated limited stakes
gaming casino, entertainment and parking facility in Black Hawk, Colorado (the
"Project"). At December 31, 1999, the Company was owned 100% by Windsor
Woodmont, L.L.C. (the "LLC"). The LLC has incurred all costs related to the
Project through December 31, 1999. The Company is considered a development stage
enterprise as its principal operations have not commenced.
The Company has no significant assets or liabilities and has no operating
activities. In connection with the transactions discussed in Note 2 , the LLC
contributed all of its assets and liabilities to the Company. The Company will
complete the development of the Project, and upon completion, will operate the
Project, which will be managed by Hyatt Gaming Management, Inc. ("Hyatt
Gaming").
2. PRIVATE PLACEMENT
On March 14, 2000, the Company successfully completed the issuance of $100
million in first mortgage notes in a Private Placement (the "Private Placement
Notes") which are senior secured obligations collateralized by substantially all
of the Company's assets. The Private Placement Notes bear interest at 13% per
annum, are payable semi-annually, mature in 2005 and contain numerous covenants,
including limitations on the payment of dividends on common stock, the
incurrence of additional indebtedness and the issuance of additional preferred
stock. The Private Placement Notes also have warrants attached that will entitle
the holders to purchase, at $0.01 per share, common stock of the Company that
represent, in the aggregate, approximately 20% of the fully diluted common stock
of the Company. The warrants are valued at $1,640,000, are immediately
exercisable and expire in 10 years. Holders of the warrants have the right to
put the warrants to the Company for cash at any time after both (1) the date on
which the notes issued in the Private Placement are paid in full, whether at
maturity or pursuant to redemption or repurchase, and (2) the date on which the
second mortgage notes issued to Hyatt Gaming are paid in full, whether at
maturity or pursuant to redemption or repurchase. The price the Company will pay
per warrant will be based on a fully diluted, per share total enterprise value
for the Company equal to (1)(a) 6.0 multiplied by earnings before interest,
taxes, depreciation, and amortization in each case of the four fiscal quarters
immediately preceding such purchase for which internal financial statements are
available, minus (b) funded debt minus (c) the liquidation preference value of
any outstanding preferred stock, plus (d) the cash to be received upon the
exercise of any warrants, options or convertible securities having an exercise
price less than the fair value of such common stock, divided by (2) the number
of shares of common stock outstanding on a fully diluted basis. The holders of
the warrants also have certain tag along and drag along rights, as defined. Net
proceeds from the Private Placement, after offering expenses, was approximately
$94.8 million. The net proceeds were used to continue to fund the development of
the project and satisfy notes payable with Kennedy Funding, Inc., National
Westminster, National Westminster Capital Markets, Mohogany Ridge LLC, American
Equity Exchange, Midcap, S-O Family Partnership, Miner's Mesa and Dan Robinowitz
(see Note 3) in addition to certain accounts payable and accrued expenses that
were significantly past due at December 31, 1999.
Upon consummation of the Private Placement, the following transactions also
occurred:
o The Company amended its articles of incorporation whereby its
authorized stock now consists of 10,000,000 shares of common stock,
$0.01 par value per share, and 1,000,000 shares of preferred stock,
$0.01 par value per share. The shares of preferred stock may be issued
from time to time in one or more series.
o The Company issued 29,000 shares of its preferred stock as "Series A"
preferred stock and 30,000 shares of its preferred stock as "Series B"
preferred stock. The holders of both the Series A and Series B
preferred stock have no voting rights. The Series A preferred stock is
non-convertible, accrues cumulative, non-compounding dividends at the
rate of 11% per annum and has a liquidation preference of $100 per
share. Holders of the Series A preferred stock may redeem their shares
at a price per share equal to their liquidation preference plus
F-20
<PAGE>
accrued and unpaid dividends thereon at any time after the later of
(1) one year after the notes issued in the Private Placement are paid
in full, whether at maturity or upon redemption or repurchase and (2)
one year after the second mortgage notes issued to Hyatt Gaming are
paid in full, whether at maturity or upon redemption or repurchase.
The Series B preferred stock is non-convertible, accrues dividends on
a cumulative basis, compounding quarterly at a rate of 7% per annum
and has a liquidation preference of $100 per share. Holders of the
Series B preferred stock may redeem their shares at a price equal to
their liquidation preference plus accrued and unpaid dividends thereon
at March 15, 2015;
o The LLC contributed all of its assets and liabilities to the Company;
in exchange the LLC received 368,964 shares of common stock of the
Company. The LLC has allocated 50,000 of the shares it received in
satisfaction of $825,000 of accrued salaries. Other shares were
transferred to its Members and to certain individuals. Such shares
represent approximately 37% of the outstanding common stock of the
Company;
o Notes payable in the amount of $7.4 million converted to 383,461
shares of common stock of the Company and accrued interest in the
amount of approximately $1.5 million was forgiven;
o The Company obtained approximately $4.0 million in proceeds from the
sale of 247,575 shares of its common stock;
o As describe above, the Company issued (a) $2.9 million of its 11%
mandatorily redeemable Series A preferred stock in satisfaction of
certain accrued salaries and other project development costs ($1.7
million) and accounts payable ($1.2 million);
o As described above, the Company issued $3.0 million of its 7%
mandatorily redeemable Series B preferred stock in exchange for cash.
The Series B preferred stock was issued with warrants valued at
$1,368,500 that will entitle the warrant holders to purchase, at an
exercise price of $0.01 per share, common stock of the Company that
represent, in the aggregate, 15% of the fully diluted common stock of
the Company. These warrants have substantially similar rights as the
warrants issued in the Private Placement;
o The Company obtained approximately $7.5 million in proceeds from the
issuance of second mortgage notes and warrants to Hyatt Gaming. The
warrants attached to the Hyatt Gaming second mortgage notes were
assigned a value of $160,000 and entitles the warrant holders to
purchase, at $0.01 per share, common stock of the Company that
represent, in the aggregate, 1.98% of the fully diluted common stock
of the Company. These warrants have the same rights as the warrants
issued in the Private Placement;
o U.S. Bancorp Libra, as placement agent, received warrants valued at
$383,000 that entitle the warrant holders to purchase, at $0.01 per
share, common stock of the Company that represent, in the aggregate,
4.67% of the fully diluted common stock of the Company. These warrants
have the same rights as the warrants issued in the Private Placement.
The value assigned to the warrants issued in the Private Placement and
other financing transactions described above were determined by the
Company's placement agent.
3. COMMITMENTS AND CONTINGENCIES
Gaming Regulation Licensing
The Company's ability to conduct gaming operations in the State of Colorado
is subject to the licensability and qualifications of the Company and its common
stockholders and may be subject to the licensability and qualifications of the
holders of its Series B preferred stock. There is no guarantee that the Colorado
Limited Gaming Control Commission will grant the Company a gaming license.
Additionally, upon receipt of a gaming license, such licensing and
qualifications will be reviewed periodically by the gaming authorities in
Colorado and there are no guarantees such license will be renewed.
F-21
<PAGE>
Management Agreement
On February 2, 2000 the Company entered into a management agreement, which
was amended on March 14, 2000 (the "Management Agreement") with Hyatt Gaming,
which, in exchange for a fee, will manage the casino operations. The management
fee will be equal to a basic fee of 3% of the adjusted gross receipts and an
incentive fee equal to 5% of the earnings before interest, taxes, depreciation
and amortization for the appropriate fiscal year. The incentive fee shall be
paid only to the extent earnings before interest, taxes, depreciation and
amortization is positive and will be subordinated in payment to the notes to be
issued in the Private Placement. The Management Agreement can be terminated by
either party upon delivery of written notice if certain events transpire.
Success Fee
The Company has agreed to pay Daniel P. Robinowitz, Co-Chairman of the
Board, President and Chief Executive Officer a "success fee" of up to $800,000.
The success fee will be earned when construction of the Project is complete and
the casino is open, and will only be paid if funds, as defined, are available.
No costs have been accrued under this agreement as of December 31, 1999.
The Company paid Timothy G. Rose, an Executive Vice President of the
Company, a "success fee" in the amount of $250,000. This success fee was earned
upon closing of the Private Placement. No costs were accrued under this
agreement as of December 31, 1999.
Construction Risks
Any construction project entails significant construction risks, including,
without limitation, cost overruns, delays in receipt of governmental approvals,
shortages of material or skilled labor, labor disputes, unforeseen environmental
or engineering problems, work stoppages, fire and other natural disasters,
construction scheduling problems and weather interferences, any of which, if it
occurred, could delay construction or result in substantial increase in costs to
the Company.
Environmental Issues
The Project will be located in a 400-square mile area that has been
designated by the United States Environmental Protection Agency (EPA) as the
Clear Creek/Central City National Priorities List Superfund Site under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
as a result of hazardous substance contamination caused by historical mining
activity in Black Hawk. This is a broad national priorities list site, within
which the EPA has identified several priority areas of contamination from
historical mining activities, including draining mines and mine dumps, for
active investigation and/or remediation. To date, the EPA has not identified the
Project site as being within a priority area nor has it identified contamination
on or from the Project site to require remediation.
We have been informed that the Superfund Division of the Colorado
Department of Public Health and the Environment (CDPHE), working with the EPA,
has sampled surface water in or near North Clear Creek near where a portion of
the Project site called Silver Gulch discharges surface water into North Clear
Creek. We have been informed that based on the results of those samples, the EPA
and the Colorado Superfund Division have expressed preliminary concern that soil
and rock associated with historic mining operations in Silver Gulch may be a
source of contamination to North Clear Creek. Even minor contamination could
form a basis for the EPA or CDPHE to require owners and operators of properties
which have been the source of contamination to investigate and remediate
contamination on or from their property or to reimburse costs incurred by the
government in connection with such remediation. The Project site could be among
the properties suspected of being a source of contamination. If investigation or
remediation of the Project site were required, the Project schedule could be
delayed and costs could increase.
F-22
<PAGE>
Construction Agreement
The LLC has entered into a construction agreement, which was assigned to
the Company upon consummation of the Private Placement, with PCL Construction
Services, Inc. ("PCL") whereby PCL will build the Project. Subject to certain
conditions, PCL has guaranteed that the cost of the Project will not exceed
$42.2 million. No costs have been incurred under this contract as of December
31, 1999.
Excavation Agreement
The LLC has entered into an excavation agreement, which was assigned to the
Company upon consummation of the Private Placement, in which all excavation for
the project will be performed by D.H. Blattner & Sons, Inc. for $8.7 million.
Costs in the amount of approximately $4.7 million have been incurred under this
contract as of December 31, 1999. This is not a maximum price contract.
Legal Proceedings
Due to the LLC's delay in satisfying its outstanding debt obligations,
liens were placed against substantially all of the LLC's assets. A portion of
the proceeds from the Private Placement were used to satisfy all such
outstanding obligations.
F-23
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page(s)
-------
Windsor Woodmont Black Hawk Resort Corp.
(A Development Stage Enterprise):
Unaudited Consolidated Balance Sheets F-25
Unaudited Consolidated Statements of Operations F-26
Unaudited Consolidated Statements of Comprehensive Loss F-27
Unaudited Consolidated Statements of Redeemable
Preferred Stock and Stockholders'
Equity/Members' (Deficit) F-28
Unaudited Consolidated Statements of Cash Flows F-29
Notes to Consolidated Financial Statements F-30
F-24
<PAGE>
<TABLE>
<CAPTION>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
March 31, 2000 December 31, 1999
------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $774,128 $147,091
Cash and cash equivalents, restricted 53,797,019 -
Short-term investments, restricted 34,021,820 -
------------------------------------------------
Total current assets 88,592,967 147,091
LAND AND CONSTRUCTION IN PROGRESS 27,190,771 29,179,581
OTHER ASSETS:
Funds held in escrow 1,524,508 1,786,990
Deferred financing costs, net of accumulated amortization
of $49,820 6,311,624 266,870
------------------------------------------------
TOTAL ASSETS $123,619,870 $31,380,532
================================================
LIABILITIES AND STOCKHOLDERS' EQUITY/MEMBER'S (DEFICIT)
CURRENT LIABILITIES:
Accounts/construction payable and accrued expenses $2,528,105 $15,293,234
Accrued interest 582,020 4,312,833
Short-term notes payable - 16,754,506
------------------------------------------------
Total current liabilities 3,110,125 36,360,573
NON-CURRENT LIABILITIES:
Notes Payable 105,695,436 -
Accrued dividends on preferred stock 21,740 -
Warrants issued on common stock 3,556,064 -
------------------------------------------------
Total non-current liabilities 109,273,240 -
------------------------------------------------
REDEEMABLE PREFERRED STOCK:
Series A - 11% dividend, $100 redemption value, 29,000 shares outstanding 2,900,000 -
Series B - 7% dividend, $100 redemption value, 30,000 shares outstanding 1,631,500 -
------------------------------------------------
Total redeemable preferred stock 4,531,500 -
------------------------------------------------
Commitments and contingencies
STOCKHOLDERS' EQUITY/MEMBER'S (DEFICIT)
Common stock, $0.01 par value, 10,000,000 shares authorized,
1,000,000 shares outstanding 10,000 -
Additional paid-in-capital 12,241,250 1,000
Deficit accumulated during the development stage (5,464,174) (4,981,041)
Other comprehensive income (82,071) -
------------------------------------------------
Total stockholders' equity $6,705,005 ($4,980,041)
------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $123,619,870 $31,380,532
================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-25
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2000 and
1999, and for the Period from Inception (July
17, 1997) Through March 31, 2000
(Unaudited)
For the period from
Inception
(July 17, 1997)
For the Three Months Ended Through
--------------------------------------------
March 31, 2000 March 31, 1999 March 31, 2000
-------------------------------------------- ----------------------
REVENUE:
Interest income $238,676 $ - $238,676
-------------------------------------------- ----------------------
Total revenue 238,676 - 238,676
--------------------------------------------------------------------
EXPENSES:
General and administrative 57 108,975 958,232
Start-up costs 165,000 - 165,000
Interest expense 535,012 38,200 1,384,833
Write-off previously capitalized costs - - 3,027,589
-------------------------------------------- ----------------------
Total expenses 700,069 147,175 5,535,654
-------------------------------------------- ----------------------
Net loss (461,393) (147,175) (5,296,978)
Preferred stock dividends 21,740 - 21,740
-------------------------------------------- ----------------------
Net loss attributable to common stock ($483,133) ($147,175) ($5,318,718)
================= ================== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-26
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Three Months Ended March 31, 2000 and 1999, and for the Period from
Inception (July 17, 1997) through March 31, 2000
(Unaudited)
For the period from
Inception
(July 17, 1997)
For the Three Months Ended Through
March 31, 2000 March 31, 1999 March 31, 2000
--------------------------------------------- --------------------
Net loss ($461,393) ($147,175) ($5,296,978)
Unrealized loss on securities held-for-sale (82,071) - (82,071)
--------------------------------------------- --------------------
Comprehensive loss ($543,464) ($147,175) ($5,379,049)
============================================= =====================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-27
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY/MEMBERS' (DEFICIT)
For the Period from Inception (July 17, 1997) through
March 31, 2000, and for the Years Ended December 31, 1999 and 1998
Deficit
Redeemable Accumulated
Preferred Common Additional During the Other Total
Stock Stock Paid-In- Development Comprehensive Stockholders'
------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Capital Stage Income Equity
------------------------------------------------------------------------------------------------
Balance at Inception
(July 17, 1997) - $ - - $ - $ - $ - $ - $ -
Initial capital
contribution 1,000 1,000
Non-cash distribution
to members (145,456) (145,456)
Net loss (589,413) (589,413)
-----------------------------------------------------------------------------------------------
Balance at
December 31, 1997 - - - - 1,000 (734,869) - (733,869)
Net loss (3,569,772) (3,569,772)
-----------------------------------------------------------------------------------------------
Balance at
December 31, 1998 - - - - 1,000 (4,304,641) - (4,303,641)
Net loss (676,400) (676,400)
-----------------------------------------------------------------------------------------------
Balance at
December 31, 1999 - - - - 1,000 (4,981,041) - (4,980,041)
Issuance of common stock 1,000,000 10,000 12,240,250 12,250,250
11% Series A preferred stock 29,000 2,900,000 -
7% Series B preferred stock 30,000 3,000,000 -
Preferred stock dividends (21,740) (21,740)
Warrants for common stock
attached to Series B
preferred stock (1,368,500) -
Net loss (461,393) (461,393)
Unrealized loss on investments
available-for-sale (82,071) (82,071)
-----------------------------------------------------------------------------------------------
Balance at March 31, 2000
(Unaudited) 59,000 $4,531,500 1,000,000 $10,000 $12,241,250 ($5,464,174) ($82,071) $6,705,005
===============================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-28
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS For the
Three Months Ended March 31, 2000, and for the Period from
Inception (July 17, 1997) through March 31, 2000
(Unaudited)
For the period from
Inception
For the Three (July 17, 1997)
Months Ended Through
March 31, 2000 March 31, 2000
-------------- --------------------
Cash flows used in operating activities:
Net loss $ (461,393) $ (5,296,978)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Write-off previously capitalized costs -- 3,027,589
Amortization of deferred financing costs 49,820 1,334,047
Changes in working capital:
Accounts payable and accrued expenses 57 127,464
Accrued interest (2,080,467) 2,232,366
------------- -------------
Net cash used in operations (2,491,983) 1,424,488
------------- -------------
Cash flows from investing activities:
Decrease (increase) in funds held in escrow 262,482 (1,524,508)
Increase in land and construction in progress (1,898,411) (29,771,541)
Change in construction payables (6,803,311) 7,635,236
Increase in cash - restricted, cost (53,793,667) (53,793,667)
Increase in short-term investments, cost (34,107,243) (34,107,243)
------------- -------------
Net cash used in investment activities (96,340,150) (111,561,723)
------------- -------------
Cash flows from financing activities:
Deferred offering costs incurred (5,711,574) (5,978,444)
Payment of financing costs -- (1,284,227)
Proceeds from notes payable 105,695,436 124,295,791
Payment of notes payable (9,339,506) (14,937,571)
Proceeds from preferred stock - Series B 1,631,500 1,631,500
Proceeds from common stock issued for cash 4,010,250 4,011,250
Proceeds from warrants issued for cash 3,173,064 3,173,064
------------- -------------
Net cash provided by financing activities 99,459,170 110,911,363
------------- -------------
Net change in cash and cash equivalents 627,037 774,128
Cash and cash equivalents, beginning of period 147,091 --
------------- -------------
Cash and cash equivalents, end of period $ 774,128 $ 774,128
============= =============
Supplemental Cash Flow Information:
Interest paid, net of capitalized interest $ 2,565,660 $ --
Land and construction in progress reductions
due to payment settlements and interest forgiven $ 3,887,221 $ 3,887,221
Accrued interest forgiven $ (1,650,346) $ (1,650,346)
Accounts payable settled for less than face value $ (2,236,875) $ (2,236,875)
Notes payable converted to common stock $ (7,415,000) $ (7,415,000)
Accounts payable settled with Series A preferred stock $ (2,900,000) $ (2,900,000)
Accounts payable settled with common stock $ (825,000) $ (825,000)
Warrants issued to placement agent $ 383,000 $ 383,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-29
</TABLE>
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
Windsor Woodmont Black Hawk Resort Corp., a Colorado corporation ("Resort
Corp." or the "Company"), was incorporated on January 9, 1998. Windsor Woodmont,
LLC (the "LLC") was formed as a limited liability company, under the laws of the
state of Colorado, on July 17, 1997. These companies were formed for the purpose
of developing an integrated limited stakes gaming casino, entertainment and
parking facility in Black Hawk, Colorado (the "Project"). As operations of the
Project have not begun, the Company and the LLC are reporting as development
stage enterprises.
On March 14, 2000 (the "Closing Date") the Company completed the Private
Placement financing transactions discussed in Note 2 below. Prior to the Closing
Date, the Company was owned 100% by the LLC and all development activities were
conducted by the LLC. The Company had no significant assets and liabilities. On
the Closing Date, the LLC contributed all of its assets and liabilities to the
Company. The Company will complete the development of the Project, and upon
completion, will operate the Project, which will be managed by Hyatt Gaming
Management, Inc.
The consolidated financial statements include the accounts of the Company
and the LLC, and for disclosures required of a development stage enterprise, the
financial statements include the accounts of the Company and the LLC from
inception (July 17, 1997).
The financial information at March 31, 2000, and for the three months ended
March 31, 2000 and 1999 and for the period from inception (July 17, 1997)
through March 31, 2000 is unaudited. The financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the disclosures required
of financial statements prepared in accordance with generally accepted
accounting principles. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, considered necessary for a fair presentation
have been included. The results of operations for the three months ended March
31, 2000 are not necessarily indicative of the results that will be achieved for
the entire year, nor once the property is operational.
These financial statements should be read in conjunction with the audited
financial statements of the LLC and the Company for the periods ended December
31, 1999 included elsewhere in this registration statement.
Summary of Significant Accounting Policies:
Cash and Cash Equivalents, Restricted
The Company considers all highly liquid investments with a maturity at the
time of purchase of six months or less to be cash equivalents. Amounts are held
in several trust accounts by Norwest Bank (as cash disbursement agent) and are
restricted in use to the development of the Black Hawk Casino by Hyatt in Black
Hawk, Colorado or for the 13% First Mortgage Notes interest payments.
Short-Term Investments, Restricted
The Company accounts for investment securities in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 addresses the
accounting and reporting requirements in equity securities that have readily
determinable fair values and for all investments in debt securities, and
requires such securities to be classified as either held to maturity, trading,
or available-for-sale.
F-30
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Management determines the appropriate classification of its investment
securities at the time of purchase and reevaluates such determination at each
balance sheet date. At March 31, 2000, the short-term investments consisted of
publicly traded corporate debt securities with a maturity date of 12 months or
less, and were classified as investments available-for-sale. As investments
available for sale, they are carried a market value, with unrealized holding
gain or loss reported as a separate component of stockholders' equity.
Amounts are held in several trust accounts by Norwest Bank (as cash
disbursement agent) and are restricted in use to the development of the Black
Hawk Casino by Hyatt in Black Hawk, Colorado or for the 13% First Mortgage Notes
interest payments.
Deferred Financing Costs
The costs of issuing long-term debt have been capitalized and are being
amortized using the effective interest rate method over the term of the related
debt.
Start-Up Costs
Start-up costs are expensed as incurred.
Warrants Issued on Common Stock
Warrants issued in connection with the Company's various financing
transactions (see Note 2), contain a "put option" permitting the warrant holder
to redeem the warrant for cash. The value of the warrants were provided by the
Company's Placement Agent, U.S. Bancorp Libra. The warrants issued with the
first mortgage notes and second mortgage notes were valued at $1.64 million and
$160,000, respectively. The warrants issued with the Series B preferred stock
have been valued at $1.37 million. The value of warrants issued to the Placement
Agent was $383,000. Due to the cash based put option feature of the warrants,
the total warrant value of $3.55 million has been recorded as a liability in the
accompanying consolidated balance sheet.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities, and related revenue and
expenses. Actual results could differ from those estimates.
2. PRIVATE PLACEMENT
On March 14, 2000, the Resort Corp. successfully completed the issuance of
$100 million in first mortgage notes in a Private Placement (the "Private
Placement Notes") which are senior secured obligations collateralized by
substantially all of Resort Corp.'s assets. The Private Placement Notes bear
interest at 13% per annum, payable semi-annually, mature in 2005 and contain
numerous covenants, including limitations on the payment of dividends on common
stock, the incurrence of additional indebtedness and the issuance of additional
preferred stock. The Private Placement Notes also have warrants attached that
will entitle the holders to purchase, at $0.01 per share, common stock of the
Company that represent, in the aggregate, approximately 20% of the fully diluted
common stock of the Company. The warrants are immediately exercisable and expire
in 10 years. Holders of the warrants have the right to put the warrants to
Resort Corp. for cash at any time after both (1) the date on which the notes
issued in the Private Placement are paid in full, whether at maturity or
pursuant to redemption or repurchase, and (2) the date on which the second
mortgage notes issued to Hyatt Gaming Management, Inc. are paid in full,
F-31
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
whether at maturity or pursuant to redemption or repurchase. The price the
Company will pay per warrant will be based on a fully diluted, per share total
enterprise value for Resort Corp. equal to (1)(a) 6.0 multiplied by earnings
before interest, taxes, depreciation, and amortization in each case of the four
fiscal quarters immediately preceding such purchase for which internal financial
statements are available, minus (b) funded debt minus (c) the liquidation
preference value of any outstanding preferred stock, plus (d) the cash to be
received upon the exercise of any warrants, options or convertible securities
having an exercise price less than the fair value of such common stock, divided
by (2) the number of shares of common stock outstanding on a fully diluted
basis. The holders of the warrants also have certain tag along and drag along
rights, as defined. Net proceeds from the Private Placement, after offering
expenses, was approximately $94.8 million. The net proceeds were used to fund
the development of the project and satisfy notes payable with Kennedy Funding,
Inc., National Westminster, National Westminster Capital Markets, Mohogany Ridge
LP, American Equity Exchange, Midcap, S-O Family Partnership, Miner's Mesa and
Dan Robinowitz (see Note 3) in addition to certain accounts payable and accrued
expenses that were significantly past due at December 31, 1999.
Upon consummation of the Private Placement, the following transactions also
occurred:
o Resort Corp. amended its articles of incorporation whereby its
authorized stock now consists of 10,000,000 shares of common stock,
$0.01 par value per share, and 1,000,000 shares of preferred stock,
$0.01 par value per share. The shares of preferred stock may be issued
from time to time in one or more series.
o Resort Corp. issued 29,000 shares of its preferred stock as "Series A"
preferred stock and 30,000 shares of its preferred stock as "Series B"
preferred stock. The holders of both the Series A and Series B
preferred stock have no voting rights. The Series A preferred stock is
non-convertible, accrues cumulative, non-compounding dividends at the
rate of 11% per annum and has a liquidation preference of $100 per
share. Holders of the Series A preferred stock may redeem their shares
at a price per share equal to their liquidation preference plus
accrued and unpaid dividends thereon at any time after the later of
(1) one year after the notes issued in the Private Placement are paid
in full, whether at maturity or upon redemption or repurchase and (2)
one year after the second mortgage notes issued to Hyatt Gaming
Management, Inc. are paid in full, whether at maturity or upon
redemption or repurchase. The Series B preferred stock is
non-convertible, accrues dividends on a cumulative basis, compounding
quarterly at a rate of 7% per annum and has a liquidation preference
of $100 per share. Holders of the Series B preferred stock may redeem
their shares at a price equal to their liquidation preference plus
accrued and unpaid dividends thereon at March 15, 2015;
o The LLC contributed all of its assets and liabilities to Resort Corp.
in exchange the LLC received 368,964 shares of common stock of Resort
Corp. Such shares represent approximately 37% of the then outstanding
common stock of Resort Corp.;
o Notes payable in the amount of $7.4 million were converted to 383,461
shares of common stock of Resort Corp. and accrued interest in the
amount of approximately $1.5 million was forgiven;
o Resort Corp. obtained approximately $4.0 million in proceeds from the
sale of 247,575 shares of its common stock;
o As described above, Resort Corp. issued (a) $2.9 million of its 11%
mandatorily redeemable Series A preferred stock in satisfaction of
certain accrued salaries and other project development costs ($1.7
million) and accounts payable ($1.2 million);
o As described above, Resort Corp. issued $3.0 million of its 7%
mandatorily redeemable Series B preferred stock in exchange for cash.
The Series B preferred stock was issued with warrants that entitle the
warrant holders to purchase, at an exercise price of $0.01 per share,
common stock of Resort Corp. that represented, in the aggregate, 15%
of the fully diluted common stock of Resort Corp. These warrants have
substantially similar rights as the warrants issued in the Private
Placement;
F-32
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
o Resort Corp. obtained approximately $7.5 million in proceeds from the
issuance of second mortgage notes and warrants to Hyatt Gaming
Management, Inc. The warrants attached to the Hyatt Gaming Management,
Inc. second mortgage notes entitled the warrant holders to purchase,
at $0.01 per share, common stock of Resort Corp. that represented, in
the aggregate, 1.977% of the fully diluted common stock of Resort
Corp. These warrants have the same rights as the warrants issued in
the Private Placement;
o U.S. Bancorp Libra, as placement agent, received warrants that entitle
the warrant holders to purchase, at $0.01 per share, common stock of
Resort Corp. that represent, in the aggregate, 4.67% of the fully
diluted common stock of Resort Corp. These warrants have the same
rights as the warrants issued in the Private Placement.
3. INCOME TAXES
The Resort Corp. accounts for Income Taxes according to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires the recognition of deferred tax assets, net of
applicable reserves, related to net operating loss carry-forwards and certain
temporary differences. The standard requires recognition of a future tax benefit
to the extent that the realization of such benefits is more likely than not.
Otherwise, a valuation allowance is applied. At March 31, 2000, Resort Corp.
believes that it is more likely than not that none of its deferred tax assets
are realizable because of the absence of accurate future projected taxable
income. Accordingly, all deferred tax assets are fully reserved as of March 31,
2000.
4. COMMITMENTS AND CONTINGENCIES
Gaming Regulation Licensing
The Company's ability to conduct gaming operations in the State of Colorado
is subject to the licensability and qualifications of the Company and its common
stockholders and may be subject to the licensability and qualifications of the
holders of its Series B preferred stock. There is no guarantee that the Colorado
Limited Gaming Control Commission will grant the Company a gaming license.
Additionally, upon receipt of a gaming license, such licensing and
qualifications will be reviewed periodically by the gaming authorities in
Colorado and there are no guarantees such license will be renewed.
Management Agreement
On February 2, 2000 the Company entered into a management agreement, which
was amended on March 14, 2000 (the "Management Agreement") with Hyatt Gaming
Management, Inc., which, in exchange for a fee, will manage the casino
operations. The management fee will be equal to a basic fee of 3% of the
adjusted gross receipts and an incentive fee equal to 5% of the earnings before
interest, taxes, depreciation and amortization for the appropriate fiscal year.
The incentive fee shall be paid only to the extent earnings before interest,
taxes, depreciation and amortization is positive and will be subordinated in
payment to the notes issued in the Private Placement. The Management Agreement
can be terminated by either party upon delivery of written notice if certain
events transpire.
Success Fee
The Company has agreed to pay Daniel P. Robinowitz, Chairman of the Board,
President and Chief Executive Officer a "success fee" of up to $800,000. The
success fee will be earned when construction of the Project is complete and the
casino is open, and will only be paid if funds, as defined, are available. No
costs have been accrued under this agreement as of March 31, 2000.
F-33
<PAGE>
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Construction Risks
Any construction project entails significant construction risks, including,
without limitation, cost overruns, delays in receipt of governmental approvals,
shortages of material or skilled labor, labor disputes, unforeseen environmental
or engineering problems, work stoppages, fire and other natural disasters,
construction scheduling problems and weather interferences, any of which, if it
occurred, could delay construction or result in substantial increase in costs to
the Company.
Environmental Issues
The Project will be located in a 400-square mile area that has been
designated by the United States Environmental Protection Agency (EPA) as the
Clear Creek/Central City National Priorities List Superfund Site under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
as a result of hazardous substance contamination caused by historical mining
activity in Black Hawk. This is a broad national priorities list site, within
which the EPA has identified several priority areas of contamination from
historical mining activities, including draining mines and mine dumps, for
active investigation and/or remediation. To date, the EPA has not identified the
Project site as being within a priority area nor has it identified contamination
on or from the project site to require remediation.
We have been informed that the Superfund Division of the Colorado
Department of Public Health and the Environment (CDPHE), working with the EPA,
has sampled surface water in or near North Clear Creek near where a portion of
the Project site called Silver Gulch discharges surface water into North Clear
Creek. We have been informed that based on the results of those samples, the EPA
and the Colorado Superfund Division have expressed preliminary concern that soil
and rock associated with historic mining operations in Silver Gulch may be a
source of contamination to North Clear Creek. Even minor contamination could
form a basis for the EPA or CDPHE to require owners and operators of properties
which have been the source of contamination to investigate and remediate
contamination on or from their property or to reimburse costs incurred by the
government in connection with such remediation. The Project site could be among
the properties suspected of being a source of contamination. If investigation or
remediation of the project site were required, the Project schedule could be
delayed and costs could increase.
Construction Agreement
The LLC has entered into a construction agreement, which was assigned to
the Company upon consummation of the Private Placement, with PCL Construction
Services, Inc. ("PCL") whereby PCL will build the Project. Subject to certain
conditions, PCL has guaranteed that the cost of the Project will not exceed
$42.2 million.
Excavation Agreement
The LLC has entered into an excavation agreement, which was assigned to the
Company upon consummation of the Private Placement, in which all excavation for
the project will be performed by D.H. Blattner & Sons, Inc. for $8.7 million.
This is not a maximum price contract.
Legal Proceedings
Due to the LLC's delay in satisfying its outstanding debt obligations,
liens were placed on substantially all of the LLC's assets. The Company used a
portion of the proceeds from the Private Placement to satisfy all such
outstanding obligations.
F-34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Twelfth, Section 3 of the First Amended and Restated Articles of
Incorporation of Windsor Woodmont Black Hawk Resort Corp., included herewith as
Exhibit 3.1, provides for the indemnification of the Company's officers and
directors to the full extent permitted by Colorado law. The officers and
directors are indemnified under various provisions of the Colorado Business
Corporation Act, which provide for the indemnification of officers and directors
and other persons against expenses, judgments, fines and amounts paid in
settlement in connection with threatened, pending or completed suits or
proceedings against such persons by reason of serving or having served as
officers, directors or in other capacities, except in relation to matters with
respect to which such persons shall be determined not to have acted in good
faith and in the best interests of the Company. With respect to matters as to
which the Company's officers and directors and others are determined to be
liable for misconduct or negligence, including gross negligence, in the
performance of their duties to the Company, Colorado law provides for
indemnification only to the extent that the court in which the action or suit is
brought determines that such person is fairly and reasonably entitled to
indemnification for which the court deems proper.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to officers, directors or persons controlling the Company
pursuant to the foregoing, the Company has been informed that in the opinion of
the U.S. Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act, and is therefore
unenforceable.
In accordance with the laws of the State of Colorado, the Company's Bylaws
authorize indemnification of a director, officer, employee or agent of the
Company for expenses incurred in connection with any action, suit, or proceeding
to which he or the is named a party by reason of his having acted or served in
such capacity, except for liabilities arising from his own misconduct or
negligence in performance of his or her duty. In addition, even a director
officer, employee, or agent of the Company who was found liable for misconduct
or negligence in the performance of his or her duty may obtain such
indemnification if, in view of all the circumstances in the case, a court of
competent jurisdiction determines such person is fairly and reasonably entitled
to indemnification. Insofar as indemnification for liabilities arising under the
Securities Act, may be permitted to directors, officers, or persons controlling
the issuing Company pursuant to the foregoing provisions, the Company has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits: A list of exhibits filed with this registration statement is
contained in the index to exhibits, which is incorporated by reference.
(b) Financial Statement Schedules: None required or applicable.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
<PAGE>
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at thetermination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
each registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
corporation being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the above-named Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Dallas, State of Texas on the 11th day of July, 2000.
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
BY: /s/ Daniel P. Robinowitz
---------------------------------------------
Daniel P. Robinowitz, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on July 11, 2000.
Signature Title Date
--------- ----- ----
/s/ Daniel P. Robinowitz Chairman of the Board, July 11, 2000
------------------------ President and Chief
Daniel P. Robinowitz Executive Officer
/s/ Irving C. Deal Vice Chairman of the Board July 11, 2000
------------------------
Irving C. Deal
/s/ Craig F. Sullivan Vice Chairman of the Board July 11, 2000
------------------------
Craig F. Sullivan
/s/ Michael L. Armstrong Executive Vice President, July 11, 2000
------------------------ Chief Financial Officer,
Michael L. Armstrong Treasurer and Assistant Secretary
/s/ Timothy G. Rose Executive Vice President -- July 11, 2000
------------------------ Casino Operations and
Timothy G. Rose Development
/s/ Jerry L. Dauderman Director July 11, 2000
------------------------
Jerry L. Dauderman
/s/ Donald J. Malouf Director July 11, 2000
---------------------
Donald J. Malouf
/s/ Jess Ravich Director July 11, 2000
----------------
Jess Ravich
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
3.1 First Amended and Restated Articles of Incorporation of Windsor
Woodmont Black Hawk Resort Corp.
3.2 First Amended and Restated Bylaws of Windsor Woodmont Black Hawk
Resort Corp.
4.1 Indenture, dated as of March 14, 2000, by and between Windsor
Woodmont Black Hawk Resort Corp. and SunTrust Bank, as Trustee
4.2 Form of 13% First Mortgage Notes, Series B
4.3* Form of Series A Warrant certificates dated March 14, 2000 issued
to unit purchasers for the purchase of up to 342,744 shares of
common stock, issued to Hyatt Gaming Management, Inc. for the
purchase of up 33,887 shares of common stock and issued to U.S.
Bancorp Libra, as placement agent, for the purchase of up to
80,031 shares of common stock
4.4* Form of Series B Warrant certificates dated March 14, 2000 to
purchase up to 257,058 shares of common stock issued to the
purchasers of the Series B Preferred Stock
4.5 First Warrant Agreement dated as of March 14, 2000, by and
Windsor Woodmont Black Hawk Resort Corp. and SunTrust Bank, as
warrant agent, relating to the issuance to the unit purchasers of
warrants for the purchase of 342,744 shares of common stock, the
issuance to Hyatt Gaming management inc. of warrants to purchase
33,887 shares of common stock and the issuance to U.S. Bancorp
Libra, as placement agent, of warrants to purchase 80,031 shares
of common stock
4.6 Second Warrant Agreement, dated as of March 14, 2000, by and
between Windsor Woodmont Black Hawk Resort Corp. and SunTrust
Bank, as warrant agent, relating to the issuance to the
purchasers of the Series B Preferred Stock of warrants for the
purchase of 257,058 shares of common stock
4.7 A/B Exchange Registration Rights Agreement, dated as of March 14,
2000, among Windsor Woodmont Black Hawk Resort Corp. and the unit
purchasers
4.8 Warrant Registration Rights Agreement, dated as of March 14,
2000, by and among Windsor Woodmont Black Hawk Resort Corp., each
of the purchasers of the units, Hyatt Gaming Management, Inc.,
each of the purchasers of the Series B Preferred Stock and U.S.
Bancorp Libra
<PAGE>
4.9 Windsor Woodmont Black Hawk Resort Corp agrees to furnish to the
Securities and Exchange Commission, upon its request, the
instruments defining the rights of holders of long term debt
where the total amount securities authorized thereunder does not
exceed 10% of the company's total assets
5.1* Opinion of Schlueter & Associates, P.C. as to the legality of the
securities being registered
10.1* Management Agreement dated as of February 2, 2000, by and between
Windsor Woodmont Black Hawk Resort Corp. and Hyatt Gaming
Management, Inc. and First Amendment to Management Agreement
10.2* Subordination, Non-Disturbance and Attornment Agreement dated as
of March 14, 2000, by and among Windsor Woodmont Black Hawk
Resort Corp., Hyatt Gaming Management, Inc. and SunTrust Bank, a
trustee
10.3* Architect's Agreement dated as of January 31, 2000 by and between
Windsor Woodmont LLC and Paul Steelman Ltd., and assignment
thereof from Windsor Woodmont LLC to Windsor Woodmont Black Hawk
Resort Corp.
10.4* Construction Management Agreement dated February 1, 2000 by and
between Windsor Woodmont LLC and Building Sciences, and
assignment thereof from Windsor Woodmont LLC to Windsor Woodmont
Black Hawk Resort Corp.
10.5* Construction Agreement dated as of January 11, 2000 by and
between Windsor Woodmont LLC and PCL Construction Services, Inc,
and assignment thereof from Windsor Woodmont LLC to Windsor
Woodmont Black Hawk Resort Corp.
10.6* Excavation Agreement dated as of December 31, 1999, by and
between Windsor Woodmont LLC and D.H. Blattner & Sons, as
amended, and assignment thereof from Windsor Woodmont LLC to
Windsor Woodmont Black Hawk Resort Corp.
10.7* Subdivision Agreement dated December 29, 1997 by and between
Windsor Woodmont LLC and the City of Black Hawk, including the
First Addendum, dated March 25, 1998, Second Addendum, dated May
27, 1998, and Third Addendum, dated March 29, 2000, thereto
10.8* Deed of Trust to Public Trustee, Security Agreement, Fixture
Filing and Assignment of Rents, Leases and Leasehold Interest,,
dated as of March 14, 2000, by Windsor Woodmont Black Hawk Resort
Corp.
10.9 Security Agreement, dated as of March 14, 2000, by and between
Windsor Woodmont Black Hawk Resort Corp. and SunTrust Bank, as
trustee
<PAGE>
10.10 Pledge and Assignment Agreement, dated as of March 14, 2000, by
and among Windsor Woodmont Black Hawk Resort Corp. in favor of
SunTrust Bank, as trustee
10.11 Collateral Assignment, dated as of March 14, 2000, by and between
Windsor Woodmont Black Hawk Resort Corp. in favor of SunTrust
Bank, as trustee
10.12 Subordinated Loan Agreement, dated as of March 14, 2000, by and
between Windsor Woodmont Black Hawk Resort Corp. and Hyatt Gaming
Management, Inc.
10.13 Hyatt Gaming Deed of Trust to Public Trustee, Security Agreement,
Fixture Filing and Assignment of Rents, Leases and Leasehold
Interests,, dated as of March 14, 2000, by Windsor Woodmont Black
Hawk Resort Corp. to the Public Trustee of the County of Gilpin,
Colorado, for the benefit of Hyatt Gaming Management, Inc.
10.14 Hyatt Gaming Security Agreement, dated as of March 14, 2000, by
and between Windsor Woodmont Black Hawk Resort Corp. and Hyatt
Gaming Management, Inc.
10.15 Hyatt Gaming Pledge and Assignment Agreement, dated as of March
14, 2000, by and among Windsor Woodmont Black Hawk Resort Corp.
in favor of Hyatt Gaming Management, Inc.
10.16 Hyatt Gaming Collateral Assignment, dated as of March 14, 2000,
by and between Windsor Woodmont Black Hawk Resort Corp. in favor
of Hyatt Gaming Management, Inc.
10.17* Pledge Agreement
10.18 Intercreditor Subordination and Collateral Agreement, dated as of
March 14, 2000, by and among SunTrust Bank, as trustee, Hyatt
Gaming Management, Inc. and Windsor Woodmont Black Hawk Resort
Corp.
10.19 Cash Collateral and Disbursement Agreement dated as of March 14,
2000 by and among SunTrust Bank, as Trustee, Windsor Woodmont
Black Hawk Resort Corp., Hyatt Gaming Management, Inc., Norwest
Bank Minnesota, N.A., as disbursement agent, First American
Heritage Title Company, as construction escrow agent, and
RE TECH+, Inc., as independent construction consultant
10.20 Account Agreement, dated as of March 14, 2000, by and among
Windsor Woodmont Black Hawk Resort Corp., SunTrust Bank, as
trustee, and Norwest Bank Minnesota, N.A., as securities
intermediary
<PAGE>
10.21 Interim Interest Reserve Account Agreement, dated as of March 14,
2000, by and among Windsor Woodmont Black Hawk Resort Corp.,
SunTrust Bank, as trustee, and Norwest Bank Minnesota, N.A., as
securities intermediary
10.22 Interest Reserve Account Agreement, dated as of March 14, 2000,
by and between Windsor Woodmont Black Hawk Resort Corp. and
SunTrust Bank, as trustee and securities intermediary
10.23* Hyatt Gaming Account Agreement, dated as of March 14, 2000, by
and among Windsor Woodmont Black Hawk Resort Corp., Hyatt Gaming
Management, Inc. and Norwest Bank Minnesota, N.A., as securities
intermediary
10.24 Shareholders Agreement, dated as of March 14, 2000
10.25 Office Lease between Dallas Office Portfolio, L.P., as landlord,
and Windsor Woodmont Black Hawk Resort Corp., as tenant
10.26* Site Improvement Agreement, dated March 29, 2000, by and between
the City of Black hawk, Colorado, and Windsor Woodmont Black Hawk
Resort Corp.
10.27* Escrow Agreement, dated March 29, 2000, by and between the City
of Black Hawk, Colorado, Windsor Woodmont Black Hawk Resort Corp.
and Norwest Bank Minnesota, N.A.
10.28* Settlement Agreement, dated Januay 31, 2000, by and between
Windsor Woodmont, LLC and D.H. Blattner & Sons, Inc.
10.29* Escrow Agreement, dated March 28, 2000, by and among D.H.
Blattner & Sons, Inc. Windsor Woodmont Black Hawk Resort Corp.
and Norwest Bank Minnesota, N.A.
10.30 Incentive Stock Option Plan
16.1* Letter from PricewaterhouseCoopers re: change in certifying
accountant
23.1 Consent of Arthur Andersen
23.2* Consent of Schlueter & Associates, P.C. (contained in Exhibit
5.1)
25.1* Form T-1 Statement of Eligibility under the Trust Indenture Act
1939 of SunTrust Bank
27 Financial Data Schedule
99.1* Form of Letter of Transmittal
----------------
* To be filed by amendment.
